HR Management & Compliance

Permissible deductions from pay for exempt employees

Are deductions from pay ever allowed for exempt employees? Naturally an employer can make deductions for taxes or employee contributions to retirement or insurance premiums, but what about deductions for days of work missed? What about deductions for time an employee is out due to disciplinary action?

Permissible deductions from pay for exempt employees

Here are the deductions from pay an employer can make for exempt employees:

  • Personal, full-day absences for reasons other than sickness or disability. If there is no vacation time available, but an exempt employee wants to take a day off, then the employer can allow it and deduct a full day of pay without affecting the exempt status of the position.
  • Disciplinary suspensions for infraction of major safety rules. For rules that relate to prevention of serious danger in the workplace, the “full-day” rule noted above does not apply—employers may dock for partial-day suspensions without affecting the ability to classify the employee as exempt.
  • Disciplinary suspensions for violations of workplace conduct rules. This is a new rule; previously only disciplinary suspension for major safety rules qualified, but now this extends to workplace conduct rules as well. This type of suspension must be imposed pursuant to a written policy, and will be construed narrowly to only encompass serious misconduct such as sexual harassment, workplace violence, or possession or use of drugs or alcohol on the premises. The “full-day” rule does apply here either.
  • FMLA leave deductions for partial-day absences. The deduction must be proportionate to the employee’s normal workweek. For example, if 5 hours of unpaid FMLA leave are taken in a situation where the employee normally has a 50-hour workweek—the employer may only deduct 10 percent of the employee’s salary.
  • Days not worked during the first and last weeks of employment. Even for exempt employees, a full salary is not required during these weeks. The employer may deduct a pro rata amount calculated on a daily or hourly basis such that the employee is paid for the days actually worked these weeks.
  • Jury duty, attendance as witness, and temporary military leave. The employer may not make a deduction of less than full workweek in these cases. However, the employer may make a salary deduction by offsetting the salary with jury fees, witness fees, or military pay.

Permissible deductions from pay for exempt employees: Deducting from paid leave accounts

Instead of deducting pay, another option available to employers in some instances is to deduct from paid leave account accruals.

“You may debit an employee’s leave account if he or she is missing work in a work week in which they are actually performing work.” Austin E. Smith told us in a recent CER webinar. This can be done without affecting the exempt classification, and can even be done for partial-day absences.

“However, we cannot dock salary for partial-day absences when a leave account has been exhausted.” Smith warned. “So, if I run out of leave, and I want to take half a day off, and an employer allows me to work half a day and then take the second half off, then [deducting from pay] could look like I’m being treated like an hourly employee, and [the deduction would] be treated like an impermissible deduction from the exempt employee’s pay.”

You could do it if the leave is available, but when it’s not, then the employer could only deduct whole days.

The above information is excerpted from the webinar “Exempt vs. Nonexempt: How to Find and Fix Misclassification Mistakes.” To register for a future webinar, visit CER webinars.

Attorney Austin E. Smith is a shareholder at the Denver office of Ogletree Deakins. In addition to his litigation practice, which focuses on wage and hour, workplace safety, and traditional labor matters, Mr. Smith also focuses on helping employers avoid potential liabilities down the road.

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