DOL Opinions: Timekeeping Policies and Pay Deductions for Exempt Employees

June 19, 2006

The US Department of Labor (“DOL”) recently issued two key opinion letters regarding timekeeping and compensation practices for exempt employees. These employees are exempt from the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime requirements because they are employed in a bona fide executive, administrative, or professional capacity and receive a guaranteed salary of at least $455 per week.

In the first opinion, DOL examined an employer’s policy that requires exempt employees to work a minimum of 45-50 hours weekly. The employer also required exempt employees to make up time they missed due to personal absences of less than a day. Employees were not docked for failing to meet either requirement, but their consistent failure to observe these rules would result in discipline up to, and including, termination.

DOL concluded that employers can require exempt employees to make up lost time without jeopardizing their exempt status. Employers can also require these employees to record and track time and work specified schedules without jeopardizing their exemptions. Employers cannot, however, impose disciplinary suspensions under the FLSA for an exempt employee’s refusal to comply with these rules because the employee’s refusal does not constitute a violation of a “workplace conduct rule” within the meaning of the new white collar regulations. §29 CFR 541.602(b)(5). Employers may only impose disciplinary suspensions on exempt employees if the rule allegedly violated applies to all employees and relates to workplace conduct, not performance or attendance issues. FLSA 2006-6.

In the second case, DOL addressed an employer’s policy regarding pay deductions from exempt employees’ salaries for lost or damaged company equipment. DOL regulation §29 CFR 541.602(b) contains an exclusive list of the five permissible exceptions under which an employer may make pay deductions without jeopardizing the exempt employee’s status:

  • Full-day deductions if the employee is absent for personal reasons besides sickness or disability;
  • Deductions for one or more full-day absences caused by sickness or disability if the deductions are made pursuant to a bona fide sick leave/disability plan, policy, or custom;
  • Offsets for military pay and jury or witness fees;
  • Deductions for penalties imposed in good faith for violations of significant safety rules; and
  • Deductions for unpaid disciplinary suspensions of one or more full days imposed in good faith for violations of workplace conduct rules.

None of these regulatory exceptions authorize deductions for lost or damaged goods. Accordingly, deductions from an exempt employee’s salary for lost, damaged, or destroyed funds or property resulting from the employee’s failure to properly carry out her duties defeats the exemption because her weekly salary is not guaranteed.

This is true even if the employee has signed a deduction authorization agreement and even if the employer requests out-of-pocket reimbursement rather than making an outright deduction from the employee’s paycheck. Further, these kinds of deductions also violate the regulatory prohibition against reductions in compensation due to the quality of an employee’s work. FLSA 2006-7.

These opinions do not apply to non-exempt employees. Accordingly, Texas employers remain free to make deductions from their wages for lost, damaged, or destroyed property so long as the employer has the employee’s written authorization to do so and the deduction does not reduce the employee’s hourly rate below the FLSA’s $5.15 minimum wage.

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