Docking the pay of exempt employees is only permissible in certain circumstances. The Fair Labor Standards Act (FLSA) governs wage and hour laws of nonexempt employees. The law requires employers to pay nonexempt employees at least the federal minimum wage and requires the payment of overtime for an employee who works more than 40 hours in a week. Employees who are exempt from the law are not entitled to overtime or the federal minimum wage, but employers may not make improper pay deductions from their salary.
This article focuses on the legal implications of docking the pay of salaried employees. See FindLaw's Wages and Benefits section for additional articles.
Exempt Employees Under FLSA
The FLSA does not apply to certain types of workers, including executives, administrators, professionals, outside sales people, and some computer employees. To be exempt, the employee must meet certain requirements regarding job duties and -- excluding outside sales employees and teachers -- must be paid on a salary basis. Exempt employees must receive a salary of at least $455 per week. An exempt computer employee must receive a salary of $455 per week or at least $27.63 per hour.
Impermissible Pay Docking
In order for an employee to qualify as exempt, the employee must receive a predetermined wage each pay period. The law prohibits the employer from docking the pay of an exempt employee because of the "quality or quantity" of the work. This means that an exempt employee must receive a full weekly salary when any work is performed during the week (the number of hours or days worked is immaterial) and when work is unavailable but the employee is ready, available, and able to work.
Permissible Pay Docking
The FLSA allows employers to make deductions of an exempt employee's salary under certain circumstances, including:
Penalties for Impermissible Pay Docking
An employer that engages in the "actual practice" of improper pay docking is subject to penalties if it is established that the employer did not intend to pay the employee on a salary basis. The court will consider several factors when making this determination, including:
An employer that engages in the actual practice of improper pay docking will lose the overtime exemption for the period the docking occurred for other employees working in the same job classification for the same manager responsible for the deduction. This means that the employer must pay normally exempt workers overtime wages if their hours exceed 40 hours for one work week. If the deduction was a one-time occurrence or it was unintentional, the employer will not lose the exemption if the employee receives reimbursement.
The employer will receive safe harbor from losing the overtime exemption if:
The employer will still lose the overtime exemption if willful noncompliance continues after receiving complaints from employees, however.
Don't Take Legal Risks: Talk to an Employment Law Attorney
Employment law can sometimes get confusing, and even the best of intentions can get uninformed business owners into legal trouble. When in doubt about whether you may dock an employee's salary, any employer's best bet is to speak with a lawyer. Focus on what you do best and let a business attorney experienced in employment law handle your most delicate employment law matters.