Paying Your Exempt Employees Correctly

When an employee is truly exempt under the Fair Labor Standards Act — and that’s a whole different issue — an employer doesn’t have to pay overtime.  That’s a nice perk for employers.  However, those exempt employees have some perks as well, including the fact that, for the most part, they must receive their full salary for any week in which they work.  You read that correctly – if I’m an exempt employee, and I work one hour next week, I’m probably entitled to my entire salary for the week.

There are seven specific exceptions to the “work one hour/get your full pay” rule, as detailed in 29 C.F.R. 541.602:

1. Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability.  Note that partial days aren’t covered by the exemption – just full days.  Thus, if an exempt employee is absent just part of the day for purely personal reasons (like Christmas shopping), you can’t deduct anything.
2. Deductions may be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability (think PTO policies – you still pay them, it just leads to less PTO in the bank for the employee).
3. While an employer cannot make deductions from pay for absences of exempt employees occasioned by jury duty, attendance as a witness or temporary military leave, employers may offset any amounts received by those employees as jury fees, witness fees or military pay for a particular week against the salary due for that particular week.
4. Deductions from pay of exempt employees may be made for penalties imposed in good faith for infractions of safety rules of major significance – emphasis on “major.”
5. Deductions from pay of exempt employees may be made for unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules.
6. An employer is not required to pay the full salary in the initial or final week of employment.  Thus, if a salaried employee starts on a Wednesday, an employer only has to pay him starting on Wednesday.  If a salaried employee leaves on a Thursday, the employer only has to pay her through Thursday.
7. An employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act. Rather, when an exempt employee takes unpaid leave under the Family and Medical Leave Act, an employer may pay a proportionate part of the full salary for time actually worked.  Note that this exception does allow deductions for partial days.

What happens if you violate the rule by withholding pay from an exempt employee, and none of the exceptions apply?  You could lose the exemption altogether, exposing you to a claim for overtime.  Be careful out there when withholding from an exempt employee’s pay.