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Leave-deduction option isn’t enough to destroy exempt status

by on
in Office Management,Payroll Management

One of the biggest pitfalls with the Fair Labor Standards Act is the salary trap. FLSA entitles exempt employees to their entire regular salary in any week they are ready, willing and able to work. Docking employees' pay could wipe out their exempt status, resulting in a big bill for both overtime and back pay. Even worse, you could owe overtime to every formerly exempt employee, not just the one who filed the complaint.

But you can still have reasonable rules in place to make sure your exempt employees are around to do the work that needs to be done. As a recent court ruling shows, employers can suggest that employees, whether they're exempt or nonexempt, make every effort to make it to work during bad weather. Those who don't may be given the choice of making the time up with a vacation day or taking a day without pay, without destroying their status as exempt from overtime.

Recent case: Fifty-five exempt employees sued their employer, an energy company, demanding to be paid overtime. Their argument: Labor Department overtime rules say employees whose salary is "subject to" a pay reduction aren't exempt employees. Their proof: The workers pointed to a lone e-mail that said employees who can't make it to work because of heavy snow can take either a vacation day or a day off without pay.

But the court didn't buy it. Since employees had the option of taking a vacation day (and since no exempt worker actually had such a deduction), the court said the workers didn't lose their exempt status. The snow policy could result in a deduction for paid time off. Such "leave docking" can be done without jeopardy to exempt status. In contrast, pay docking would destroy exempt status. (Ken-nedy v. Commonwealth Edison, No. 03-2971, 7th Cir., 2005)

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