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Employers have leeway in docking exempts’ pay

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in Office Management,Payroll Management

Employees must receive a guaranteed salary of $455 a week and perform exempt duties to be exempt from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime provisions. But that doesn’t mean you can never dock their pay.

Two cases serve as timely reminders of the circumstances under which you may dock exempts’ pay.

Case #1: Partial-day docking from leave bank allowed

An accountant alleged that on several occasions she had time deducted from her leave bank when she left work early or arrived late. She was terminated for performance issues and sued, seeking to recover the value of the time deducted. Employee’s claim: The FLSA forbids employers from deducting time from exempt employees.

Emphasizing that no deductions were made from her salary, the employer asked a federal trial court to dismiss the case, which it did. A federal appeals court upheld the decision. Court: The Department of Labor makes a distinction between salary and nonmonetary compensation, such as vacation time. As long as the employee’s salary wasn’t reduced, deductions from a leave bank, whether in full-day or partial-day increments, don’t affect her exempt status, the court concluded. (McBride v. Peak Wellness Center, Inc., No. 11-8037, 10th Cir., 2012)

Case #2: Partial-day docking spanning two workweeks allowed

The FLSA allows employers to dock exempts who are absent for a full day for personal reasons. The FLSA also allows employers to choose any continuous 168-hour period as their workweek.

The employer’s workweek began at noon on Fridays. A construction inspector who was absent on a Friday had his pay docked for eight hours over two workweeks—four hours for the workweek that ended at noon on Friday, and another four hours for the workweek that began at 12:01. The employee sued for unpaid overtime, arguing that since the workweek began at noon, the partial-day deductions over those two Fridays negated his exempt status. Similarly, he argued that workweeks that began at noon violated the FLSA’s workweek requirement because it allowed partial-day docking from exempts’ pay.

A federal trial court ruled against the employee. Court: The FLSA gives employers complete discretion in choosing their workweeks. The issue is the full-day absence, not how the deduction is taken, the court continued. This employer properly allocated the employee’s full-day pay deductions to two workweeks. To rule that two four-hour increments don’t equal one eight-hour day would be overanalyzing the FLSA, the court concluded. (Malkovskiy v. The Shaw Group, Inc., No. 2:2011cv02227, D.C. N.J., 2012)

PAYROLL PRACTICE TIP: The FLSA is only your starting point. Remember, state laws that ­provide employees with greater protection are the laws you must apply. Bottom line: Your policy for docking exempts’ pay must jibe with the FLSA and state law.

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