CEDR Two Minute Trainer: Exempt Personnel – Permissible Deductions

ICHRA & QSEHRA can help employers save vs group health plans

You have finally mastered the difference between Exempt and Non-Exempt employees, and you have determined that you do have exempt employees who meet the salary and duties criteria for exemption from the FLSA overtime and minimum wage rules. Good job! Now, there are certain rules you need to follow in order to make sure your salaried exempt employees stay qualified as exempt. (If you are still unsure about how to classify an employee, or what exempt status means, don’t guess, call the CEDR Solution Center and get help.)

First, make sure you and your employee are clear that the position is exempt, by putting a job description in place that includes the duties you used to classify the employee as exempt. For example, your Salaried Exempt Practice Manager job description might include the following as “Essential Duties”:

  • Responsible for directing, training, and supervising the work of front desk team
  • Conducts interviews and makes recommendations for hiring
  • Responsible for apportioning work among employees and appraising productivity
  • Responsible for maintaining production levels, motivating team, and developing programs to meet company goals


How to Treat Absences

Second, it is important that you understand how to treat absences and be careful not to make improper deductions from your exempt employee’s regular salary. Any time an exempt employee performs any work during a day, or is absent for less than a full day, he or she must be paid for the full day. When an exempt employee is absent for a full day or more, deductions may be made as follows:

    • Personal Time Off: If the absence is for personal reasons, deductions CAN be made from salary when the absence is for a full day or more.
    • Sick Days: If the absence is for a sickness or disability, deductions from pay should not be made, but full day absences may be counted off their allotted paid time off, such as paid sick leave or paid vacation.

Important Note on Sick Day Deductions: If the employee has exhausted their paid time off (vacation, sick days, PTO) or has not yet qualified under your paid time off plan (e.g., during a 90 day waiting period), deductions from pay can be made for absences of a full day or more. If your plan allows for deductions from a paid time off or vacation plan in increments, you may deduct from their allotted paid time off in smaller increments (e.g. 1/2 day), but remember you cannot deduct from salary for less than a full day.

  • Disciplinary Suspension: For disciplinary suspension of 1 or more full days for serious infractions of workplace conduct rules, the employer may deduction from an exempt employee’s pay.
  • First/Last Day of Employment: Deductions from pay may be made for the first and last week of employment if the employee works less than a full workweek. Payment of a proportional amount of the salary should be made for actual time worked.


Improper Salary Deductions

The employee can LOSE THEIR EXEMPT STATUS if the employer makes improper deductions! This is really bad because it means you may have to go back and pay the employee for any overtime they may have worked during the time period in which the regulations were not met.

It is impermissible to deduct from a salaried exempt employee’s pay for the following reasons:

  • No work available – Employee is ready willing and able, but there is not enough work to do.
  • Holidays – From the first day of hire, if the office is closed due to a holiday or work shut down, the exempt employee must be paid for the day. You may require exempt employees to use available PTO/paid vacation for this time, as long as you give notice and it is part of your regular practice to do so. (In California, you must give 90 days’ notice).
  • Jury duty, witness leave, military leave, employee absence due to court or military orders – While you cannot deduct an exempt employee’s pay for this reason, you can offset any fees or pay the employee receives against the salary due.
  • Absences for less than a full day – Again, you may NOT deduct for absences of less than a full day.
  • Lost or damaged equipment – Employees may not be fined or suffer a pay deduction to reimburse an employer for lost or damaged equipment.


Final Steps to Protect Exempt Status:

  1. Have a clear safe harbor policy which indicates a policy against improper deductions and has a complaint mechanism for any improper deductions;
  2. Reimburse employees for improper deductions that have occurred;
  3. Make a good faith effort to comply with the regulations in the future.

Questions? This is a complicated topic, but it’s important to get right. Anytime you’re unsure about permissible deductions for Salaried Exempt employees, just call your CEDR Solution Center Advisor at 866-414-6056 or email info@cedrsolutions.com. We will be happy to help.

May 10, 2011

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.
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