United States: FLSA Regulations: The Impact Of Improper Salary Deductions

(Part 2 of the Wage-Hour Compliance Series)

In this second part of our series, we explain how to avoid improper salary deductions that could destroy the overtime exemption of an employee who otherwise meets the applicable "duties test" for one of the so-called "white collar" exemptions.

The federal Fair Labor Standards Act ("FLSA") exempts bona fide executive, administrative and professional employees from its minimum wage, overtime and timekeeping requirements. U.S. Labor Department regulations further subdivide these exemptions into categories for certain computer professional employees and certain highly compensated employees meeting particular requirements. One requirement for most of these exemptions is that the employee must be paid at least in part on a "salary basis".

Currently, the minimum salary amount for most of these employees is $455 per week. However, the amount of the employee's salary is not the only requirement. The way in which the employee is paid also is important.

Being paid on a "salary basis", means that the employee receives a pre-determined amount of compensation each pay period that is not subject to reduction (due to variations in the quality or quantity of the employee's work).

Subject to certain exceptions, the employee must receive his or her full salary for every workweek in which the employee performs any work, without regard to the number of days or hours worked. In most circumstances, salary deductions may not be made for absences occasioned by the employer or by the employer's operating requirements for time when work is not available or for reasons of work quality.

There are specific rules covering whether and under what circumstances the employer can deduct from an exempt employee's salary based on the quantity or quality of his or her work. U.S. Labor Department, FLSA regulations, allow salary deductions for:

  • Proportional deductions for whole-day absences due to personal reasons other than sickness or disability.
  • Proportional deductions for whole-day absences due to sickness or disability (including work-related accidents) if this is done in accordance with a bona fide plan, policy or practice providing compensation for salary loss due to such sickness or disability.
  • Offsets against the salary for any amounts received by the employee as jury fees, witness fees or military pay for the particular workweek.
  • Salary deductions made as penalties imposed in good faith for infractions of safety rules of major significance.
  • Salary deductions made for unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules. This encompasses suspensions imposed under written policies applicable to all employees regarding serious work-related misconduct such as sexual harassment, violence, drug or alcohol violations or violations of the law.
  • Paying a proportionate part of the employee's full salary for the time actually worked in the first workweek of employment or in the last workweek of employment.
  • Paying a proportionate part of the employee's full salary for the time actually worked in the workweek when the employee takes unpaid leave under the federal Family and Medical Leave Act.

Deductions for absences not fitting within the above rules can be made from a vacation allowance, a sick leave bank, other paid-time-off ("PTO") account, and so on without undercutting the salary basis, provided that the employee still receives his or her full salary amount (even after the PTO allotment is exhausted).

The Impact of Impermissible Deductions

So what happens if an employer makes improper salary deductions from exempt employees? The answer depends on a variety of considerations, starting with what the facts show about whether the employer did or did not intend to pay the employees on a salary basis.

The U.S. Labor Department says that an "actual practice" of making improper salary deductions demonstrates that the employer did not so intend and that the exemption is lost. Among the factors relevant to this question are:

  • The number of improper deductions, particularly as compared to the number of similar instances in which a deduction might have been made
  • The time period over which the deductions were made
  • The number and location of the affected employees
  • The number and location of managers responsible for the deductions
  • Whether there is a clearly communicated policy permitting or prohibiting improper deductions

An actual practice of making improper deductions causes the exemption to be lost (a) during the timeframe in which they were made (b) for employees in the same job classification and (c) working for the same managers responsible for the actual deductions.

It is possible avoid this outcome in some circumstances. For one thing, improper deductions which are only isolated or inadvertent will not cause the exemptions to be lost if the employer reimburses the employees affected.

The exemptions can also be salvaged under a "safe harbor". This protection is available if:

  • The employer has in place a clearly communicated policy prohibiting the improper pay deductions specified in the general salary basis rule
  • This policy includes a complaint mechanism through which employees can bring to the employer's attention deductions that they believe to have been impermissible
  • The employer undertakes to investigate such complaints and, upon concluding that improper deductions were made, both reimburses the employees and makes a good-faith commitment to comply with the salary basis rules in the future

The employer loses the safe harbor protection by failing to reimburse employees for improper deductions or by willfully violating the policy by continuing to make impermissible deductions after receiving employee complaints about them. If that happens, the exemptions probably will be lost during the timeframe over which they were made for employees in the same job classification working for the same managers responsible for the actual improper deductions.

Employers can improve wage-hour compliance, and bolster potential defenses, by adopting and publishing such a safe harbor policy.

This article appeared on October 21, 2013 on Executive Street Blog.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.