The rules and regulations around docking employee wages can be tricky, but it’s essential for employers to beware of these rules as there can be hefty fines associated with incorrectly docking an employee’s pay. Before we jump into pay docking rules, here is a quick reminder about exempt vs. non-exempt classifications under the federal Fair Labor Standards Act (FLSA):
- To qualify as exempt, employees generally must be paid no less than $844* per week on a salary basis and are not eligible for overtime pay. The position must also meet certain criteria under the duties test. In addition to the FLSA, there are many states that have their own salary and duties test for determining whether an employee is exempt from overtime. In many cases, the state criteria are more difficult to meet than the federal criteria.
*The exempt salary threshold is slated to increase to $1,128 per week effective January 1, 2025; however this may be delayed or changed pending legal challenge.
- Covered non-exempt employees are generally paid on an hourly basis and must receive overtime pay for any hours worked in excess of 40 per workweek at a rate no less than one- and one-half times their regular rate of pay.
Docking Exempt Salaried Employees
An exempt employee’s salary, as defined by the FLSA, must be paid in full if any work is performed during the workweek; this means as an employer, you cannot deduct an hour here or there for late arrivals or medical appointments. If you improperly dock pay of a salaried employee, you can face overtime pay, back taxes, and penalties. Under the FLSA, employers can reduce an exempt employee’s salary only in limited and specific circumstances:
- If the exempt employee is out for one or more full days (not partial) due to personal reasons, other than sickness. For example, if an employee needs a day off to attend a wedding and has depleted all their paid time off, you may dock a full day since this is a voluntary day off for personal reasons. Partial day docking would violate the FLSA in this example.
- If an employee is absent due to sickness or disability for one or more full days, but only if their pay reduction aligns with an established plan, policy, or practice that compensates for lost salary during such absences due to personal reasons, sickness, or accident. For example, if an employee runs out of sick time but needs to take a sick day, an employer may dock a full day since there is a bona fide sick leave plan and sick time has been exhausted. Partial day docking would violate the FLSA in this example.
- To offset amounts a salaried employee receives as jury duty or witness fees or for military pay.
- If the employee is on an unpaid leave of absence under the federal Family and Medical Leave Act (FMLA); this includes consecutive, intermittent, or reduced scheduled leave.
- For unpaid disciplinary suspensions of one or more full days for workplace conduct violations imposed in good faith. Partial day docking would violate the FLSA in this example.
- During the employee’s first or last week of employment. For example, if an employee starts on a Wednesday, you do not have to pay them for Monday or Tuesday. Partial day docking would violate the FLSA in this example.
Salary deductions for exempt employees are only permissible under specific circumstances outlined by the FLSA.
Reducing exempt employee’s pay is only permissible for full-day absences for the reasons outlined above. Outside of these specific instances, pay docking is generally not permissible. For example, if an employee needs to run an errand or go to an hour-long appointment during their workday, regardless of whether they have available accrual paid time off, an employer must pay their full salary or risk losing the position’s exemption.
Professions Exempt from Salary Basis Test
The FLSA has a carve-out from the salary basis test for certain positions based on specific job duties, allowing for permissible docking based on specific circumstances. Professions that are exempt from the salary test include teachers, employees that practice law or medicine, outside sales employees, and certain computer professionals. The FLSA provides clear definitions of these roles, so employers should not rely solely on job titles to determine whether salary requirements apply.
Teachers fall into this category if their primary duty is teaching, tutoring, instructing, or lecturing and if they are employed and engaged in this activity in an educational establishment. Some examples include, but are not limited to; regular academic teachers, kindergarten or nursery-school teachers, teachers of gifted children or children with a disability, and vocal or instrument music teachers (paraprofessionals may not qualify). The salary and salary basis requirements do not apply to bona fide teachers as defined in the regulations, making analysis situational. When an employee is in a profession that meets the above FLSA exception categories, such as a teacher, they may be paid any amount on any basis, and as such, their salary may be subject to deductions or docking if the employee worked less than a full day.
State Specific Regulations on Employee Wages
It is important to review state-specific laws as some states have their own rules and thresholds regarding employee’s wages. For example, the salary threshold for executive and administrative employees is $1,200 per week in NYC, Nassau, Suffolk, and Westchester counties and $1,124.20 per week in the remainder of New York state.
Additionally, Massachusetts follows federal FLSA rules. Like our example regarding docking teacher’s salaries, Massachusetts schools may dock a teacher’s salary in full or partial day increments for any reason due to the salary basis carve-out. However, employers need to keep in mind the interplay with state specific sick time laws. To continue the example with Massachusetts teachers, employers who provide 40 or more hours of paid time off that may be used for sick reasons are not required to provide additional sick leave to employees who use their paid time off for other purposes and have need of sick leave later in the year. However, employers must provide notice to employees that additional time will not be provided. This provision should be clearly outlined in your organization’s policy.
Docking Non-Exempt Employees
As discussed above, non-exempt employees are generally paid on an hourly basis; therefore, if a non-exempt employee has depleted their paid time off and needs either a full or partial day off, employers simply do not need to pay them for the time away from work. Employers must ensure the employee has used all required sick time based on the reason for the absence, if applicable. Employers should also have a clearly written policy detailing how missed time is handled for non-exempt employees when they have depleted their paid time off balance.
Practical Tips
Overall, this is a complicated topic and the FLSA carves out several exceptions depending on the category of employee. We cannot emphasize enough that job title alone is not an adequate tool to determine exempt status and whether the salary basis exemptions apply. Most of what we have outlined applies to federal law; therefore, interpretation and application of state wage and hour laws may be different. It is generally best practice to apply consistent HR and payroll practices within your organization.
If you have any questions regarding this Practice Pointer or need HR Consulting, please email us.