Exempt Employees and Docking Pay
By Kathryn O'Connor, PHR, SHRM-CP, CCP, GRP, Director, Compensation Services
Published January 9, 2018
Deducting pay from an exempt employee pay can be a tricky matter, especially since the exempt status can be forfeited if an employee is not paid on a true salary basis.
Being paid on a “salary basis” means exempt employees regularly receive a predetermined amount of compensation each pay period. The predetermined amount cannot be reduced due to variations in the quality or quantity of an employee’s work. Furthermore, exempt employees must receive their full salary for any week during which they perform work regardless of the number of hours they actually work.
There are very few permitted exceptions to paying exempt employees on a salary basis. Employers may make deductions from the salaries of exempt employees only under these limited circumstances:
- Exempt employees do not need to be paid for any workweek in which they perform no work.
- The exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability. (Partial days would still need to be paid in full.) Unfortunately, the Department of Labor does not define “personal reason,” so we advise caution when applying this exception. It’s advised to have the employee sign a statement requesting the given days off and specifically state they are being requested for “personal reasons.”
- The exempt employee has absences of one or more full days due to sickness or disability and: a) the deduction is made in accordance with a bona fide plan, policy, or practice of providing compensation for salary lost due to illness and b) the employee has not yet become eligible to participate in the plan or has exhausted all accrued time.
- The exempt employee’s pay can be offset to account for any compensation the employee may have received related to jury fees, witness fees, or military pay.
- If an exempt employee has violated a major safety rule (which could cause serious danger in the workplace), a deduction that constitutes a good faith penalty can be made.
- Unpaid disciplinary suspensions of one or more full days can be unpaid, if they are imposed in good faith for workplace policy infractions. (This exception, while permissible on a federal level, is not recognized within the state of Illinois. Therefore, Illinois employers are not able to deduct exempt employee pay for this reason.)
- An employer is not required to pay the full salary in the initial or last week of employment, when only part of the week is worked by the employee.
- Partial pay deductions may be made for leave taken under the Family Medical Leave Act (FMLA), if such absence constitutes intermittent or reduced leave under the FMLA.
What if you’ve improperly deducted from an exempt employee’s pay? In the event an employer makes an impermissible deduction from an exempt employee, it is best to immediately reimburse the employee for the deductions and commit to comply with the rules going forward. Be careful to avoid willful or frequent improper deductions. Doing so could cause you to lose the exemption status of an individual or group of employees, requiring you to pay overtime to them going forward.
Questions on this topic? Management Association members are encouraged to call the HR Hotline and speak with one of our compensation professionals at 800-448-4584, or email us at email@example.com.