Whether a deduction is permissible or impermissible for an exempt employee will depend on the facts in the particular case. The general rule is to stick to company policy and heed the list of permissible and nonpermissible deductions under the Fair Labor Standards Act (FLSA). The FLSA does not regulate vacation, severance, sick, and holiday pay or rest and meal times. Most of these are a matter of company policy and should be enforced in a nondiscriminatory manner. As a general rule, employers should err on the side of caution when it comes to deducting exempt personnel. If an exempt employee abuses the company's policy on work time, employers cannot dock their pay. Instead, point out the policy and discipline the employee accordingly. In addition, be aware that many state laws do regulate areas that the FLSA does not. In these cases, the state law would control.
Deductions may be made when the employee is absent from work for a full day or more for personal reasons other than sickness or disability. Thus, if an employee is absent for a day or longer to handle personal affairs, his or her salaried status will not be affected if deductions are made from his or her salary for such absences. If an employee is absent for less than a day, he or she must be paid for the full day.
It is important to note that employers may deduct from an employee's allotted personal time under the company's leave plan in increments of less than a day. The employer simply may not deduct an employee's pay for less than a day's absence.
Deductions also may be made for absences of a full day or more occasioned by sickness or disability (including industrial accidents) if the deduction is made under a bona fide plan, policy, or practice of providing compensation for loss of salary caused by both sickness and disability. Similarly, if the employer operates under a state or private sickness and disability insurance law, deductions may be made for a day or longer if benefits are provided under the particular law or plan. In the case of work-related accidents, the "salary basis" requirement will be met if the employee is compensated for loss of salary in accordance with the applicable workers' compensation law or the plan adopted by the employer, provided the employer also has some plan, policy, or practice of providing compensation for sickness and disability for non-work-related accidents.
Sickness and disability deductions are an area of confusion for some employers. It is important to distinguish between deducting from an exempt employee's paycheck and deducting from an employee's allotted sick time. The employer may not deduct from an employee's pay for less than a day's absence for sickness or disability. But, if an employer, for example, provides an employee with 2 weeks of paid sick time by company policy and the employee has used up all of his or her sick time, an employer may deduct from the employee's paycheck in full-day increments if the employee is out for a day or more. If the employee works for any part of a day, though, and is out sick the remainder of the day, the employer may not deduct from the employee's paycheck.
On the other hand, employers may deduct from an employee's allotted sick time under the company's leave plan in increments of less than a day as long as the employee has not used up his or her paid sick time.
Employers may dock the pay of otherwise salaried and exempt employees for family and medical leave-related absences of less than 1 full day without affecting their exempt status but only in situations where the employer is required to provide leave under the FMLA.
