Exempt Status, Discipline and Damage Deductions

By James Hatch

Jul. 1, 2006

May an employer impose a fine on exempt employees who damage or lose equipment used in performing their jobs, such as cellular telephones or laptop computers? That was a question answered in a recent U.S. Department of Labor wage and hour opinion letter.

    An employer can legally require deductions from the wages of its nonexempt employees for the cost of lost or damaged tools, as long as the deductions do not reduce the employees’ pay below the minimum wage.

    However, according to the Department of Labor, such deductions for exempt employees would violate the Fair Labor Standards Act regulation prohibiting salary reductions due to the quality of work performance. Because the employees would not be paid a guaranteed or fixed amount, violation of the salary basis rule would also jeopardize their exempt status.

    In a separate opinion letter, the DOL concluded that employers could insist that exempt employees work more than 40 hours per week and could discipline them for not fulfilling that work requirement. An employer may even require an exempt employee to do such things as record and track hours and work a specified schedule without affecting the employee’s exempt status. However, employers cannot impose a disciplinary suspension of one day or more for an infraction of these requirements because such rules must only relate to “conduct, not performance or attendance issues.” Wage and Hour Opinion Letters, FLSA Nos. 2006-6 and 2006-7 (3/10/06).

    Impact: Employers are cautioned that deductions from the salaries of overtime-exempt employees risk the loss of such exemption unless expressly authorized by FLSA, its regulations or applicable state law.

Workforce Management, June 26, 2006, p. 8Subscribe Now!

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