Salaried Exempt Employee Deductions from Salary

SESCO Management

To qualify for exemption, employees generally must be paid at least $684 per week on a salary basis. Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis.

There are circumstances when deductions can be made from an exempt employee’s pay. Deductions can be made if the exempt employee is absent for a day or more for personal reasons (personal leave).

Also, deductions may be made for absences of a full day or more due to sickness or disability, if the deduction is made in accordance with a bona fide plan of providing compensation for loss of salary caused by sickness or disability (such as sick leave, PTO time, vacation, etc.). For example, if an exempt employee has accrued sick leave or PTO time and he is absent for 4 hours of the workday, he would be paid for the full day, but 4 hours would be deducted from his bank of sick leave. However, if the exempt employee has not yet qualified for sick leave or has exhausted his sick leave, there would be a deduction in his pay only if he is absent for a full day or longer.

An exempt employee’s salary may be reduced to offset amounts the employee receives for jury duty or military pay. Deductions are also allowed for penalties imposed for major violations of safety rules or for unpaid disciplinary suspensions of one or more full days for violation of the organization’s work rules.

Also, note that under the Family and Medical Leave Act (FMLA), an exempt employee’s pay may be reduced when unpaid FMLA leave is taken. This is the case even when less than a full day is taken as FMLA leave.

Inclement Weather

Poor weather conditions of the winter months can often raise pay-related questions for employers. Employees may not report to work because of hazardous conditions, or your business may close for the day. The issue is straightforward for non-exempt employees (i.e., employees paid on an hourly basis, subject to overtime pay). Non-exempt employees are paid for the actual time worked. Thus, if they do not report for work or the business is closed, they are not paid for the day. An employer may choose to allow these employees to use vacation or other paid time off to cover the lost wages.

The issue is a little more complex for salaried exempt employees. The question of pay is determined by whether or not the employer is open for business and whether the exempt employee works any part of the day. An employer that remains open for business during a weather emergency may lawfully deduct one full-day’s absence from the salary of an exempt employee who does not report for work for the day due to adverse weather conditions. In a recent opinion letter, the Department of Labor considers this an absence due to personal reasons; therefore, a deduction of a full-day’s pay will not violate the salary basis rule or otherwise affect the employee’s exempt status. It should be noted that deductions from salary for less than a full-day’s absence are not permitted for such reasons under the wage and hour regulations. The Wage and Hour Division has stated that an employer may, as an option, require an exempt employee who fails to report for work in this situation to take vacation or other paid leave to cover the full-day’s absence.

What about the pay of a salaried exempt employee if the business is closed? An employer may not make deductions “for absences occasioned by the employer or by the operating requirements of the business.” If the employer closes operations due to weather or other emergency for less than a full workweek, then the employer must pay an exempt employee “the full salary for any week in which the employee performs any work without regard to the number of days or hours worked,” because “deductions may not be made for time when work is not available.” Again, the Wage and Hour Division has ruled that an employer may direct exempt employees to take vacation or other paid leave in this situation, provided the employees receive in payment an amount equal to their guaranteed salary. However, if an exempt employee has no vacation or paid leave, the employee would still receive the full week’s salary in this situation (where the business is closed for less than a week).

Sickness vs. Personal Reasons for Absence

Deductions from a salaried exempt employee’s pay for sickness/disability or personal reasons may only be made as follows:

Employers With a Bona Fide Leave Plan:

• Exempt-Sickness or Disability-Partial Day-Can be forced to use leave time. If leave is exhausted or has not become effective yet, no reduction in pay is allowed; however, the leave balance may be reduced to the negative.
• Exempt-Sickness or Disability-Full Day-Can be forced to use leave time. If leave is exhausted or has not become effective yet a full day reduction in pay is allowed (an employer may pay leave time where the balance is zero thereby reducing the leave balance to the negative).
• Exempt-Personal-Partial Day-Can be forced to use leave time. If leave is exhausted or has not become effective yet, no reduction in pay is allowed; however, the leave balance may be reduced to the negative.
• Exempt-Personal-Full Day-Can be forced to use leave time. If leave is exhausted or has not become effective yet a full day reduction in pay is allowed (an employer may pay leave time where the balance is zero thereby reducing the leave balance to the negative).

Employers Without a Bona Fide Leave Plan:

• Exempt-Sickness or Disability-Partial Day- No reduction in pay is allowed.
• Exempt-Sickness or Disability-Full Day-No reduction in pay is allowed unless the full workweek is not worked.
• Exempt-Personal-Partial Day-No reduction in pay is allowed.
• Exempt-Personal-Full Day-Reduction in pay is allowed.

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