When Can You Legally Dock a Salaried Employee's Pay?

Managing a salaried workforce involves navigating state and federal laws for paid time. There are times when you may need to make deductions from an exempt employee’s salary for absences or disciplinary reasons.

However, a misstep with an employee’s wages can lead to significant liability. This guide explains the rules under the Fair Labor Standards Act (FLSA) to help you maintain compliance and avoid costly penalties. For advice tailored to your business’s unique needs, consult a local employment attorney.

What Is Pay Docking?

“Pay docking” occurs when an employer makes deductions from an exempt, salaried employee‘s pay. It’s only legal under specific circumstances governed by the Fair Labor Standards Act (FLSA), such as full-day absences for personal reasons or disciplinary suspensions. Small business owners should check their state employment laws or state wage and hour division departments before imposing disciplinary rules involving pay docking or suspension.

What Is an Exempt Employee?

Under the FLSA, workers fall into two categories that determine how they are paid: nonexempt and exempt. These are defined as:

• Nonexempt employees: Typically paid an hourly wage and are entitled to overtime pay if they perform more than 40 hours of work in a given week.
• Exempt employees (under the Fair Labor Standards Act (FLSA): Generally paid a fixed salary regardless of the number of hours worked and cannot have their pay docked for partial-day absences (the FLSA does not cover exempt employees with regard to minimum wage and overtime pay)

Salaried employees receive a regular rate of pay whether they work a whole week or only part of a week. Any salary deductions are those permitted by law, such as income tax, Social Security, and state taxes.

Employees who qualify for exempt status must perform specific job duties. The FLSA defines “exempt status” work as supervisory, managerial, or having “genuine input” into matters of significance about the job and employees. A salaried employee who manages employees and makes decisions about hiring and firing is exempt.

Other exempt workers often paid on a salary basis include teachers, lawyers, and nurses. These workers have specialized education, often advanced degrees. Contract workers are not employees, so they fall outside FLSA rules.

When Is Pay Docking Permissible for Exempt Employees?

The FLSA permits pay docking for exempt employees. Some examples of permissible pay docking include, but are not limited to:

• Absences of one or more full days for personal reasons unrelated to sickness or accident
• Absences of one or more full days for sickness or disability, if you have a benefit plan that covers these absences and the employee has exhausted their benefits
• To offset any amount received from jury duty, witness fees, or military pay (beyond this, you can’t deduct for these absences)
• As a penalty for violating safety rules of major significance or as a disciplinary suspension under company policy (workers must be subject to the penalties and employees must know of the penalties before they receive them)
• For unpaid disciplinary suspensions of one or more full days imposed in good faith for violations of significant workplace conduct rules (such as policies against sexual harassment or workplace violence)
• For intermittent unpaid leave under the FMLA (a salaried worker may convert to hourly under FMLA without losing their status)

All deductions to an exempt employee’s salary are in full-day increments, unless under FMLA. If the employee worked any part of the day, their employer can’t dock pay for that workday. Some exceptions apply. For example, if it’s the employee’s first or last week of employment and they leave mid-week after working only a partial day, they only need to be paid for the time worked.

When Is Pay Docking Not Allowed?

Exempt employees must get their full salary regardless of the number of days or hours worked. FLSA rules prohibit pay docking based on the “quality or quantity” of the work. The employee must receive the predetermined amount if they work during the pay period. If work is unavailable, but the employee is available and able to work, they must get paid as if they were on the job.

An employer cannot dock an exempt employee’s salary for:

• Partial-day absences: If an exempt employee works for any part of a day, they must be paid for the full day
• Lack of work: If work is unavailable but the employee is ready to work, their salary cannot be reduced
• Performance or quality of work: Salary is not tied to the quality or quantity of work produced in a given week
• Jury duty or military leave: While you can offset pay by the amount the employee receives for these duties, you cannot make deductions beyond that

The U.S. Department of Labor notes that salaried employees cannot have their pay docked for “loss of equipment,” such as damage to a company laptop.

Improper deductions can lead to penalties. Employers should consult with an employment law attorney to ensure compliance.

What Are the Penalties for Unlawful Pay Docking?

An employer that makes improper deductions through unlawful pay docking subjects itself to penalties, including loss of the overtime pay exemption. The employer must repay overtime for any hours worked over 40 per week.

Other penalties may include:

• Repaying back wages with interest
• Statutory liquidated damages
• Civil penalties
• Paying the employee’s attorney fees

This is not an exhaustive list.

Special Situations: Pandemics, Slowdowns, and Emergencies

The COVID-19 pandemic highlighted the complexities of wage docking for salaried employees. FLSA states that exempt employees receive payment if they work any part of a normal workweek. Pay can only be withheld if the business is shut down for an entire full workweek in which zero work is performed.

An involuntary deduction in an exempt worker‘s pay due to a slowdown violates FLSA regulations. If the employee is “ready, willing, and able to work,” the employer may not send them home or cut their pay if work is slow. According to DOL guidelines, “Deductions may not be made from the employee’s predetermined salary for absences occasioned by the employer or by the operating requirements of the business.”

Exempt employees can volunteer to take unpaid time off due to lack of work. Salary deductions must follow FLSA guidelines.

The FMLA provides qualified employees with up to 12 weeks of unpaid sick leave. It allows workers to care for themselves or family members suffering from severe health conditions. During the COVID-19 pandemic, the DOL clarified that FMLA leave could not be used to avoid potential exposure at work. FMLA leave is only permissible for qualifying serious health conditions affecting the employee or their family member.

Don’t Take Risks: Talk to an Employment Law Attorney

Employment law is confusing. Even the best intentions can get uninformed business owners into legal trouble. When in doubt about docking an employee’s salary, your best bet is to talk with a lawyer. Focus on what you do best, and let a business attorney experienced in employment law handle your most delicate salary matters.