Can You Deduct Time Off From a Salaried Employee?

Salaried employees typically receive a consistent amount of pay each pay period, regardless of the hours worked. This expectation is subject to specific federal and state regulations, primarily the Fair Labor Standards Act (FLSA). Understanding these rules is important for employers to ensure compliance and avoid potential penalties.

Salary Basis Requirements

For an employee to be considered salaried and exempt from overtime pay under the FLSA, they must be paid on a “salary basis.” This means an employee must regularly receive a predetermined amount of compensation each pay period. This amount cannot be reduced due to variations in the quality or quantity of work performed. The full salary must be paid for any week in which the employee performs any work, irrespective of the number of days or hours worked.

This regular payment must be made on a weekly or less frequent basis. If an employer makes deductions from this predetermined salary because of business operating requirements, the employee is generally not considered to be paid on a salary basis. This principle underscores that if an employee is ready, willing, and able to work, no deductions should be made for time when work is unavailable.

When Deductions Are Allowed

While the FLSA generally requires consistent pay for salaried employees, specific, limited circumstances permit deductions. Deductions can be made for absences of one or more full days due to personal reasons, excluding sickness or disability. For example, if an employee takes a full day off for a personal errand, their pay can be reduced for that full day.

Deductions are also allowed for full-day absences caused by sickness or disability, provided the employer has a bona fide plan or policy for providing wage replacement benefits. This includes situations where an employee has exhausted their paid sick leave or disability benefits. Employers can also deduct amounts received by employees as jury fees, witness fees, or military pay, offsetting these against the salary due for that week.

Penalties imposed in good faith for infractions of safety rules of major significance are another exception. The FLSA also permits proportionate deductions from an exempt employee’s salary when they take unpaid leave under the Family and Medical Leave Act (FMLA). Employers are not required to pay the full salary in the initial or terminal week of employment, allowing for proportionate payment for time actually worked in those weeks.

When Deductions Are Not Allowed

Certain deductions from a salaried employee’s pay are prohibited under the FLSA, and making them can have significant consequences. Employers cannot make deductions for absences of less than a full day. This includes partial-day absences for personal reasons, sickness, or disciplinary reasons. For instance, if a salaried employee arrives late or leaves early, their pay cannot be docked for that partial absence.

Deductions are not allowed for time when work is unavailable due to the employer’s operational requirements. If a business temporarily closes due to weather, equipment failure, or a lack of work, salaried employees who are ready and able to work must still receive their full pay. Deductions for disciplinary reasons are largely restricted to infractions of safety rules of major significance; other disciplinary deductions are impermissible.

Making impermissible deductions can result in the loss of an employee’s exempt status, meaning they would then be entitled to overtime pay for all hours worked over 40 in a workweek. This loss of exemption can be retroactive and may apply to all employees in the same job classification working for the same managers responsible for the improper deductions. This creates substantial financial and compliance risks for employers, including potential back pay and penalties.

Correcting Improper Deductions

Employers who have made improper deductions from a salaried employee’s pay may preserve the employee’s exempt status through a “safe harbor” provision. This provision applies if the improper deductions were isolated or inadvertent, and the employer reimburses the employee for the amount improperly deducted. This is sometimes referred to as a “window of correction.”

A broader safe harbor is available if the employer has a clearly communicated policy prohibiting improper deductions and includes a complaint mechanism. Under this policy, the employer must reimburse employees for any improper deductions made. Additionally, the employer must make a good faith commitment to comply with the salary basis rules in the future. If these conditions are met, the employer will not lose the exemption unless they willfully violate the policy by continuing improper deductions after receiving employee complaints.

Additional State Rules

While the FLSA establishes federal standards for salaried employees and permissible deductions, many states have their own wage and hour laws. These state laws may impose more stringent requirements or additional restrictions regarding deductions from pay. Employers should consult state-specific regulations to ensure full compliance, as state laws can often provide greater protections for employees than federal law.