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Salary Deductions May Jeopardize Exempt Status Under FLSA

by The Human Equation, Inc. on 9/11/2008
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Pursuant to the Fair Labor Standards Act's executive exemption, our salaried store managers are not eligible for overtime compensation. One such manager left the store for five hours to run some personal errands without permission. Although she has already been disciplined, may we also deduct her pay to reflect the unexcused absence?

No. The Fair Labor Standards Act (FLSA) is the federal law requiring that non-exempt employees be paid overtime compensation for all time worked over 40 hours in a workweek. The FLSA contains several exemptions to the overtime pay requirement, including the executive exemption. One of the requirements of the executive exemption is that the exempt employee be paid on a salary basis. According to the regulations interpreting the FLSA, an employee will be considered as being paid on a salary basis if the employee regularly receives a predetermined amount constituting all or part of the employee's compensation, an amount that is not subject to reduction because of variations in the quality or quantity of the work performed. Significantly, the regulations provide that the employee must receive the full salary for any week in which the employee performs any work, without regard to the number of days or hours worked. The consequences for violating this requirement can be drastic.

An employer who makes an improper deduction from an employee's salary may lose the ability to exempt not only the employee in question but also all employees in the same job classification working for the same manager who made the improper deduction from the employee's salary. As a consequence of making an improper deduction from a salaried employee, the employer may be forced to pay significant amounts of overtime compensation to employees who may not otherwise be entitled to receive overtime pay. There are some limited exceptions that give an employer the right to make deductions from an exempt, salaried employee's pay. One such exemption allows an employer to make salary deductions when an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability. However, the exception would not apply in this case because the manager in question missed only five hours, not a full day. The complexity of the rules governing salary deductions, as well as the consequences of improperly doing so, highlights the need for employers to seek professional guidance before implementing a policy of salary deductions.

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Categories: 2008

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