For you to classify an employee as salaried exempt—that is, exempt from the rules of the Fair Labor Standards Act, including overtime—you must meet numerous conditions. The actual duties an employee carries out must fall under one of the exemption categories, such as outside sales, management, or an administrative exemption.
But, a proper job description isn't the only thing that is required for an employee to be exempt from overtime payments: the employee must receive the same paycheck every pay period.
This means that whether an employee works five hours or 55 hours a week, the paycheck is the same. Managers can't deduct pay from an exempt employee when she takes long lunches or comes in late to work.
But, the employee isn't entitled to a penny more in the paycheck for putting in an 80 hour week in order to meet a deadline. (Companies certainly can give employees bonuses, though, and in situations that involve close deadlines or picking up the slack for a departing employee, bonuses and other recognition are encouraged.)
This rule is hard and fast. Once you start deducting from an exempt employee's paycheck you've just made him or her non-exempt. They're now eligible for overtime pay going backward and forward. This is not a mistake you want to make.
But, can you ever deduct pay from an exempt employee's paycheck? A few times exist. Here are five times when you can deduct pay from an exempt employee’s paycheck.
1. First and Last Week
You only have to pay employees for the days worked on their first and last week. If your pay periods run Monday-Sunday, with a two day weekend, and your employee starts on Wednesday, you only have to pay her for Wednesday, Thursday, and Friday. Likewise, if her last day of work is Wednesday, you only have to pay for Monday, Tuesday, and Wednesday.
Otherwise, if an employee works a partial week, for whatever reason, you still have to pay for the whole week, unless it qualifies under another allowed deduction.
2. Deductions Ordered By a Court
These aren't real deductions—the employee is still earning the same amount of money; it's just that her paycheck is smaller. If she's under a court order for child support, alimony, or to pay off debts, you can (and must) deduct what the law requires and give that money to wherever the courts direct it.
Frequently, with these court-ordered deductions, employees are not happy about what you are doing to them. Make sure that you make it painfully clear to your employee that you are only following the law and must do what the courts have ordered. Remember, you're not actually docking her pay; you're just paying some of her bills automatically.
3. A Full Day Off (Vacation)
If your employee has used up all of her vacation time and wants to take a day off, it's possible for her to take the day off. You will not need to pay her for that day if the time off is for a non-illness related day off. It's the equivalent of a vacation day, not a sick day.
Naturally, whether or not you allow this unpaid day off is up to you. If you grant the unpaid day (or days) off, remind your employee that they are not to do any work on those days off. Doing as much as 15 minutes of work can trigger the touch the wall rule. Because exempt employees are paid the same, regardless of the number of hours they work, doing 15 minutes of work means they get paid for the whole day.
If you don't trust that your employee will refrain from answering emails, taking phone calls, or doing a few minutes of work on that project due next week, keep her laptop in the office and turn off her emails for the time in question.
4. A Full Day Off (Other)
According to the U.S. Department of Labor, Wage and Hour Division, you can only deduct a full day off for reasons other than illness if you not only have a “bona fide plan, policy or practice of providing compensation for salary lost due to illness; to offset amounts employees receive as jury or witness fees, or for military pay; for penalties imposed in good faith for infractions of safety rules of major significance; or for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.”
In other words, you can't just decide on the fly to dock an exempt employee's pay when you've suspended an employee for a rule infraction.
You need to have a plan in place that spells out the conditions under which you will not pay exempt employees. Otherwise, it's an illegal deduction if you dock an exempt employee's pay and the employee has worked at all during a week, you've just voided the exemption.
If you have an employee who is out for several weeks on FMLA, it's pretty obvious that you do not have to pay the exempt employee during that time. She's gone for full days, and it's part of a bona fide plan. But what about intermittent FMLA?
That is when an employee is approved to take a few hours off at a time to deal with medical problems—whether for their own problems or those of a qualified family member. The Family Medical Leave Act specifically allows you to deduct exempt employee pay when they use FMLA.
So, if your employee needs to take two afternoons off a week for dialysis, you don't have to pay them for that time.
However, here's a caution on this deduction. Because exempt employees are paid for the job and not by the hour, if your employee is still working a full 40 hours and you're deducting a half day's pay each week when they go to their medical appointment, you are legally right, but morally and ethically wrong.
General Rule About Docking an Exempt Employee's Pay
As a general rule, just remember not to deduct anything from an exempt employee's salary. If the employee takes a few hours off during the middle of the day, comes in late, or leaves early, you can deduct from their PTO bank, but proceed with caution when you do this. If the employee is otherwise a good employee who gets her job done, don't punish her for the efficiency with which she uses her time.
If you decide that you want the ability to deduct pay for such time off, remember it's always legal to pay people by the hour. If you go that route, though, your employee is now eligible for overtime payments, regardless of whether she meets the other qualifications for exemption. So, your desire to save a few dollars because she takes long lunches will be overtaken by the huge overtime pay she'll receive during the busy season.
It's most important to remember that exempt employees are hired to do the job, not to work specific hours. Treat them like responsible professionals and the chances are, everything will even out in the end.