How Do I Protect the Exempt Status of a Position?
By Carol Rovello, SPHR
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. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work.
An exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Exempt employees do not need to be paid for any workweek in which they perform no work. An employee is not paid on a salary basis if deductions from the predetermined salary are made for absences occasioned by the company or by the operating requirements of the business. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available.
Deductions from pay are permissible for the following purposes:
1. When an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability.
For example, if an employee is absent for two full days to handle personal affairs, the employee’s salaried status will not be affected if deductions are made from the salary for two full-day absences. However, if an exempt employee is absent for one and a half days for personal reasons, the company can deduct only for the one full-day absence.
2. For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy, or practice of providing compensation for salary lost due to illness.
The Company is not required to pay any portion of the employee’s salary for full-day absences for which the employee receives compensation under the plan, policy, or practice. Deductions for such full-day absences also may be made before the employee has qualified under the plan, policy, or practice and after the employee has exhausted the leave allowance.
For example, if an employer maintains a short-term disability insurance plan providing salary replacement for 12 weeks starting on the fourth day of absence, the employer may make deductions from pay for the following purposes:
For the three days of absence before the employee qualifies for benefits under the plan.
For the 12 weeks in which the employee receives salary replacement benefits under the plan.
For absences after the employee has exhausted the 12 weeks of salary replacement benefits.
Similarly, an employer may make deductions from pay for absences of one or more full days if salary replacement benefits are provided under a state disability insurance law or under a state workers’ compensation law.
3. To offset amounts employees receive as jury or witness fees, or for military pay.
While the Company cannot make deductions from pay for absences of an exempt employee occasioned by jury duty, attendance as a witness, or temporary military leave, it 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 without loss of the exemption.
4. For penalties imposed in good faith for infractions of safety rules of major significance.
Safety rules of major significance include those relating to the prevention of serious danger in the workplace or to other employees.
5. For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.
Such suspensions must be imposed pursuant to a written policy applicable to all employees. For example, an employer may suspend an exempt employee without pay for three days for violating a generally applicable written policy prohibiting sexual harassment. Similarly, an employer may suspend an exempt employee without pay for 12 days for violating a generally applicable written policy prohibiting workplace violence.
6. For weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.
When an exempt employee takes unpaid leave under the Family and Medical Leave Act, the Company may pay a proportionate part of the full salary for time actually worked. For example, if an employee who normally works 40 hours per week uses four hours of unpaid leave under the Family and Medical Leave Act, the company could deduct 10 percent of the employee’s normal salary that week.
7. Proportionate part of an employee’s full salary may be paid for time actually worked in the first and last weeks of employment.
The Company may pay a proportionate part of an employee’s full salary for the time actually worked in the first and last week of employment. In such weeks, the payment of an hourly or daily equivalent of the employee’s full salary for the time actually worked will meet the requirement. However, employees are not paid on a salary basis within the meaning of these regulations if they are employed occasionally for a few days and the employer pays them a proportionate part of the weekly salary when so employed.
No Partial-Day Docking
Importantly, deductions allowed for these types of absences are for one or more full days. This means a deduction may be taken from the salary under this language only in full-day increments. Deductions for partial-day absences violate the salary basis rule generally, except those occurring in the first or final week of someone’s employment or for unpaid leave taken under the Family and Medical Leave Act. For example, if an employee is absent for one and a half days to handle personal affairs, the Company may only deduct for the one full-day absence. The employee must receive a full day’s pay for the partial day worked to meet the salary basis rule.
When calculating the amount of an allowed deduction from pay, the company may use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee. A deduction from pay as a penalty for violations of major safety rules of this section may be made in any amount.
Examples of improper deductions include:
Deduction for a partial-day absence to attend a parent-teacher conference
Deduction of a day of pay because the employer was closed due to inclement weather
Deduction of three days of pay because the employee was absent from work for jury duty, rather than merely offsetting any amount received as payment for the jury duty
Deduction for a two-day absence due to a minor illness when the employer does not provide wage replacement benefits for such absences
A “safe harbor” exists that will save an exemption although improper deductions are made. The exemption will not be lost if the employer does the following:
Has a clearly communicated policy prohibiting improper deductions and including a complaint mechanism.
Reimburses employees for any improper deductions.
Makes a good faith commitment to comply in the future.
This safe harbor is not available if the employer willfully violates the policy by continuing to make the improper deductions after receiving employee complaints.
CLICK HERE to learn how "mandatory time off" can impact exempt status.
Carol Rovello is the President of Strategic Workplace Solutions. She helps organizations align human resource initiatives with business operations, anticipate and resolve HR challenges, and institute the structure needed to support organizational change.