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May 12, 2010
Docking the Pay of Exempt Workers Can Kill Exemption

Generally, if you dock the pay of exempt workers, you can potentially "kill" their exemption, because you are treating them like non-exempt workers, Laura P. Worsinger, Esq., said in a BLR webinar titled "Reducing Overtime Costs: What You Legally Can—and Can't—Do to Keep Workers at Their Straight-Time Rates."

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If you dock an exempt worker's pay, their status can be changed to nonexempt, with the possibility of your owing highly paid workers up to 3 years of back overtime (4 years in California).

Improper Deductions

An employer will be penalized if it has an "actual practice" of making improper deductions (i.e., actions that show that the employer didn't intend to pay employees on a salary basis):

  • Number of improper deductions
  • Time period during which employer made improper deductions
  • Number of employees subjected to improper salary deductions
  • Whether the employer has a clearly communicated policy that either permits or prohibits improper deductions.

Safe Harbor Protections

An employer will not be subject to the penalties noted above if either of the following are true:

  • Any improper deductions were either isolated or inadvertent, and the employer reimburses the employees for the money improperly withheld; or
  • The employer has a clearly communicated policy prohibiting improper deductions (including a complaint procedure), reimburses employees for the money improperly withheld, and makes a good faith effort to comply with the law in the future.

Laura P. Worsinger, Esq. is Of Counsel with the Los Angeles office of Dykema Gossett PLLC. She has broad counseling and litigation experience and specializes in the defense of employers in individual and class actions involving wage and hour violations, misclassification, discrimination, wrongful termination, and other employment-related proceedings. She can be contacted at lworsinger@dykema.com.

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