Tuesday, May 26, 2009

Do you know? When it is lawful to take deductions from an employee’s pay?


For an employer to claim that an a professional, administrative, or executive employee is “exempt,” and therefore ineligible to receive overtime compensation, the employee must be salaried. An employee is paid on a salary basis when the employee receives the same amount of pay each pay period, without any deductions.

Despite the general rule against deductions from salaries, the Department of Labor’s rules (29 CFR 541.602) permits employers to make deductions without risking an employee’s exemption in seven specific instances:

  1. When an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability.   

  2. For absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability.   

  3. While an employer cannot make deductions from pay for absences of an exempt employee for jury duty, attendance as a witness, or temporary military leave, the employer can offset any amounts received by an employee as jury fees, witness fees, or military pay for a particular week against the salary due for that particular week.

  4. For penalties imposed in good faith for infractions of safety rules of major significance.    

  5. For unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules imposed pursuant to a written policy applicable to all employees.  

  6. For any time not actually worked during the first or last week of employment.

  7. For any time taken as unpaid FMLA leave.

It is critical for businesses with salaried employees to familiarize themselves with these rules. A mistaken deduction could prove costly. Generally speaking, if an employer makes a deduction from the amount paid, the exemption will be lost during the time period during which the improper deduction was made. The lost exemption does not only apply to the affected employees, but also to all employees in the same job classification working for the same managers responsible for the actual deduction (29 CFR 541.603(a)).

The Department of Labor also provides a safe harbor for employers that have a clearly communicated policy that prohibits the improper pay deductions, and which includes a complaint mechanism, reimburses employees for any improper deductions, and makes a good faith commitment to comply in the future (29 CFR 541.603(d)).

Before you implement a policy or practice of docking the pay of salaried employees, it is best to consult with experienced employment counsel to evaluate employees’ job classifications and exemptions, to examine the proposed deductions, and to review or draft an appropriate safe harbor policy.


Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

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