Pay Docking for Salaried Employees

During the COVID emergency, nothing caused more headaches than who got paid and how much they got paid. Now that the nation is getting back on track, large and small businesses are taking steps to ensure that if there is ever a nationwide shutdown, employee wages do not take the same beating they took in 2020.

Understanding employees' wage docking requires a summary of state and federal laws about pay and the meaning of "exempt" status.

This article focuses on the legal implications of docking salaried employees' pay.

Exempt and Nonexempt: What Does it Mean?

The Fair Labor Standards Act (FLSA) governs wage and hour laws. The FLSA determines the federal minimum wage, the number of hours employees can work before they must get overtime, and other laws about the payment of wages.

There are several requirements an employer must meet before the FLSA applies, although the categories are broad enough to cover nearly all businesses. But, some workers are not covered by the FLSA, even if their employer is. The difference has to do with the workers' payment.

FLSA does not cover exempt employees. An employee is exempt if they:

• Receive more than at least twice the minimum wage for full-time employment
• Are paid on a salary basis
• Perform "exempt" job duties (executive, administrative, professional)

FLSA covers nonexempt employees. Nonexempt employees are:

• Paid hourly
• Have limited ability for self-supervision
• Make less than twice the minimum wage for full-time employment

A nonexempt employee must get overtime pay as defined by the FLSA for all hours over 40 hours of work per week. A long-term nonexempt employee could earn well above twice the minimum wage, but if they do not meet the other requirements, they would not be exempt under the FLSA.

Exempt Employees: A Closer Look

Exempt employees are those receiving a regular rate of pay regardless of the number of hours worked. Salaried employees receive payment 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, and having "genuine input" into matters of significance about the job and employees. A salaried employee who makes decisions about hiring and firing is an exempt employee.

Other exempt workers are professionals, such as teachers, lawyers, nurses, and some computer employees. These workers have specialized education, often advanced degrees. Outside sales staff and contract workers also fall outside FLSA rules.

Pay Docking

"Pay docking" occurs whenever a business owner takes part of an employee's wages. The U.S. Department of Labor (DOL) permits pay docking for hourly workers under certain circumstances, such as violations of company policy. State laws may prohibit these actions. For instance, California law forbids docking an employee's pay for any reason.

Business owners should check their state employment laws before imposing disciplinary rules involving pay docking or suspension.

Permissible Pay Docking

The FLSA permits pay docking for exempt employees. Some examples 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. Note that beyond this, you can't deduct for these absences.
• As a penalty in good faith for violating safety rules or company policy, all workers must be subject to the penalties. 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 safety rules or company policies as above.
• For intermittent unpaid leave under the Family and Medical Leave Act (FMLA). Alternatively, 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. Employers cannot dock pay if the employee works any time of the day. The only exception is during the first or last week of employment. If the employee does not work a full week or leaves in the middle of a workweek and only works a partial day, they only need to get paid for the actual time worked.

Impermissible Pay Docking

Exempt employees must get their full salary regardless of the number of days or hours worked. FLSA rules prohibit docking pay because of the "quality or quantity" of the work. The employee must receive the predetermined amount of salary 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.

Special Situations: Pandemics, Slowdowns, and Emergencies

The COVID-19 lockdown created headaches for business owners who did not know how to pay salaried employees during the closure. Everyone hopes we will never face a national lockdown like 2020 again. FLSA states that exempt employees receive payment if they work any part of a normal workweek. A mandatory shutdown that prevents them from working would not require payment.

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 and 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."

If exempt employees volunteer to take unpaid time off due to lack of work, they may do so. Salary deductions must follow FLSA guidelines.

The FMLA provides qualified employees unpaid sick leave of up to 12 weeks. It allows workers to care for themselves or family members suffering from severe health conditions. During the COVID lockdown, the DOL stated that workers could not use FMLA time to avoid COVID. In other words, employees may not use leave to avoid getting sick.

Penalties for Unlawful Pay Docking

Employers receive many benefits from their exempt workers, including tax breaks. Making improper deductions by unlawful pay docking subjects them to penalties, including loss of the overtime pay exemption.

Suppose a worker establishes that the employer did not intend to pay them on a salary basis. In that case, the employer loses the exemption for all workers in the same classification who worked during that pay period. The employer must pay overtime for all exempt workers whose hours exceeded 40 hours per week in that period.

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 employment law matters.