Do you have exempt employees working for your company? Generally speaking, these are salaried workers. For this reason, docking exempt pay is more complicated than it is with a nonexempt employee.
Since exempt employees are not covered under overtime or minimum wage rules, they are protected from having their pay docked as a result of hours missed. That being said, this is not always the case.
Being paid a salary means that an employee receives a set amount of money for working a specified period of time. This amount cannot be reduced because of the quantity or quality of the employee's work.
Permissible Salary Deductions
While not typically the case, there are situations in which an exempt worker's salary can be docked:
You are not required to pay an exempt employee for a workweek in which no work was performed.
A situation in which an exempt employee is absent for a day or longer for personal reasons, not related to an accident or sickness.
If a penalty is being imposed for a violation of a company policy.
Unpaid suspension for breaking a conduct rule.
If an employee only works a partial week when starting or finishing employment.
It is important to understand what you can and cannot do in terms of docking employee pay. The Fair Labor Standards Act (FLSA) is in place to ensure that employers act within the limits of the law, while also giving protection to exempt workers.
Before you make any decision on whether to dock the pay of an exempt employee, it is essential to determine if the salary deduction is permissible by law.
Docking Pay for Nonexempt Employees
As an employer, it is important to know which employees are nonexempt and which employees are exempt. This information will allow you to make the right decisions regarding everything from how workers are paid to whether or not you are required to pay overtime in particular situations.
In short, a nonexempt employee is required by law to be paid the minimum wage for all hours worked. Along with this, these employees must be paid overtime if they work more than 40 hours in a workweek.
The Fair Labor Standards Act (FLSA) was created to help employers better understand the difference between nonexempt and exempt employees, while also providing protection to workers.
Are you Allowed to Dock Pay for Nonexempt Employees?
Although most employers shy away from doing so, there are cases in which you are allowed to dock pay to penalize a worker for violating a particular policy.
Note: an employer cannot refuse to pay a nonexempt worker for any hours that the person has worked.
If a nonexempt employee is absent from work or misses the entire workday, you are permitted to dock his or her pay for the hours missed. However, you are required to do so based on the normal operating hours of your business as well as the company's attendance policy.
With all this in mind, the FLSA does not prohibit employers from cutting a worker's hourly wage as a punishment. Remember, nonexempt workers are only required to earn the minimum wage in the state in which they are employed.
In other words, as long as the nonexempt worker is paid the minimum wage, the employer is allowed to dock pay by reducing the hourly wage. But as noted above, employers are not allowed to hold back payment for hours that have already been worked.
Note: employers are not permitted to dock the pay of a minimum wage worker who has violated a company policy.
There is a lot of gray area when it comes to docking pay for nonexempt employees. Before doing this, an employer must make sure they know the ins and outs of the Fair Labor Standards Act, ensuring that they do not break the law when adjusting the pay of the worker.