Are Salary Deductions Permitted from White-Collar Employees?

With certain exceptions, an exempt white-collar employee must receive full salary for any week in which he or she performs any work, regardless of the number of days or hours worked. But the salary need not be paid for any week in which no work is performed.

The following deductions and setoffs may be made from the salaries of executive, administrative or professional employees without jeopardizing the exempt status of such employees:

• When an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability;
• For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
• To offset amounts employees receive as jury or witness fees, or for military pay;
• For penalties imposed in good faith for infractions of safety rules of major significance; or
• For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions, such as for sexual harassment or workplace violence.

Also, an employer is not required to pay the full salary in the initial or terminal week of employment, or for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act (FMLA).

What will endanger exempt status? The following deductions will endanger an employee's exempt status:

1. Deductions made when no work is available are not permitted. If employees are ready, willing and able to work, they  cannot be docked for time when no work is available.
2. Partial day absences for illness or personal reasons. Deduction of pay for exempt employees of private employers who miss partial days of work, other than those absences covered by FMLA, has been held by courts to be inconsistent with the concept of a salaried employee. (The Department of Labor has clarified that employers may take deductions from accrued leave accounts, without jeopardizing exempt status.)

Effect of improper deductions from salary. The employer will lose the exemption if it has an "actual practice" of making improper deductions from salary. Factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to:

• The number of improper deductions, particularly as compared to the number of employee infractions warranting deductions;
• The time period during which the employer made improper deductions;
• The number and geographic location of both the employees whose salary was improperly reduced and the managers responsible; and
• Whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.

If an "actual practice" is found, the exemption is lost during the time period of the deductions for employees in the same job classification working for the same managers responsible for the improper deductions. Isolated or inadvertent improper deductions will not result in loss of the exemption if the employer reimburses the employee for the improper deductions.

Safe harbor. If an employer (1) has a clearly communicated policy prohibiting improper deductions and including a complaint mechanism; (2) reimburses employees for any improper deductions; and, (3) makes a good faith commitment to comply in the future, the employer will not lose the exemption for any employees unless the employer willfully violates the policy by continuing the improper deductions after receiving employee complaints.