Can I deduct my salaried employees pay? - Paper Trails

As a business owner or HR professional, managing your team effectively is key to your company’s success. A big aspect of this management involves understanding employee compensation, especially when it comes to your salaried staff.  A situation in your business may arise when salaried employees miss work. So, you may be wondering if you can deduct pay from salaried employees for time not worked, and if so, under what circumstances?

This article focuses on this scenario.  By the time you finish reading, you should have a clear understanding on what a salaried employee is, if you can deduct wages from their paycheck, and under what circumstances this may occur.  So, let’s get started!

What is a salaried employee?

A salaried employee is an individual who is compensated with a fixed amount of pay, regardless of the number of hours worked. This salary is typically paid in regular intervals, such as weekly, biweekly or semi-monthly. Unlike hourly employees, who are paid based on the actual hours they work, salaried employees receive the same amount in each pay period, providing a consistent and predictable income.

Salaried employees are often classified as “exempt” from the overtime provisions of the Fair Labor Standards Act (FLSA) and similar state laws. This exemption means they are not eligible for overtime pay for hours worked over 40 in a week. However, to qualify as exempt, these employees must typically meet certain criteria related to their job duties, level of responsibility, and a minimum salary threshold.

Can I deduct pay from salaried workers for missed time?

The world of salary deductions can be very nuanced. It’s crucial to balance legal compliance with fair employee treatment. Generally, the salary of an exempt employee should remain consistent.  If a salaried employee works any part of a day, they should be paid for the entire day. However, there are certain circumstances where deductions are legally permissible.  It may be in  your best interest to consult a professional before making the following deductions for salaried employees pay.

What are scenarios when I can deduct pay from salaried employees?

1. Full-Day Absences for Personal Reasons: If an exempt employee misses one or more full days for personal reasons, other than sickness or accident, you can make a deduction. Remember, it’s full days we’re talking about – not partial days.
2. Sickness or Disability Absences: If your business has a bona fide plan that compensates employees for salary lost due to sickness or disability, and the employee has either not yet qualified for this benefit or has exhausted their allowance, you can deduct for full-day absences.
3. FMLA Leave: Under the Family and Medical Leave Act (FMLA), it’s permissible to deduct pay for intermittent or reduced schedule leaves. This scenario is unique as it allows for partial-day deductions.
4. Initial or Final Weeks of Employment: For the first and last week of an employee’s tenure, if they work only part of the week, you can prorate their salary based on the actual days worked.
5. Disciplinary Suspensions: If you suspend an exempt employee without pay for disciplinary reasons, particularly for serious workplace conduct violations, you can deduct from their salary. However, ensure these suspensions span full days.
6. Other Legal Deductions: Situations like jury duty, witness duty, or temporary military leave also present scenarios where pay deductions are allowed, especially when the employee receives some form of compensation for these duties.
7. Vacation and PTO: While you can’t deduct from the salary for partial-day absences, you can deduct from their vacation or PTO bank, regardless of the duration of the absence. This helps maintain the exempt status while managing time off efficiently.

Calculating pro-rata deductions

Sometimes, you’ll need to calculate a pro-rata salary for full-day absences. Divide the annual salary by 52 to get the weekly rate, then divide this by the standard number of workdays (5-6) to find the daily rate. Deduct this amount from the weekly pay for each full-day absence. This calculation method ensures fairness and compliance with labor laws.

A word of caution

Before making any deductions, be absolutely sure of the circumstances. If you wrongly deduct from an exempt employee’s salary, it could lead to complications like reclassification to non-exempt status and potential overtime claims. When in doubt, it’s always wise to consult with a labor law expert or utilize resources for guidance.

Conclusion

As a small or medium-sized business employer or HR professional, understanding when and how you can deduct pay from salaried employees is essential for compliance and maintaining healthy employee relations. Remember, each situation is unique, and staying informed about the latest labor laws and regulations will help you navigate these decisions with confidence.  When in doubt, it may be best to not make any deductions to your salaried employees for absences to maintain legal compliance, but also show your appreciate to the value that your employees bring.

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