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Aug04

Reducing Exempt Employee’s Salary

If an exempt employee is restricted to 6 hrs/day due to an injury, can we adjust their pay period salary hrs to reflect this? I.E. (6hrs x 5 days x 52 weeks = 1560) (1560/24 pay periods = 65). So, we would adjust the pay period hours to be paid at 65 hrs instead of 86.67 hrs per pay period. Can this be done?

The federal Fair Labor Standards Act (FLSA) establishes compensation requirements for employees. Under the FLSA, there are limited permissible deductions from an exempt employee’s salary including:

  • When an employee is absent from work for one or more full days for personal reasons other than sickness or disability;
  • For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
  • To offset amounts employees receive as jury or witness fees, or for temporary military duty pay;
  • For penalties imposed in good faith for infractions of safety rules of major significance;
  • For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions;
  • In the employee’s initial or terminal week of employment if the employee does not work the full week, or
  • For unpaid leave taken by the employee under the federal Family and Medical Leave Act (FMLA).

In nearly all cases, deducting from an exempt employee’s salary is only allowed in full day-increments. Moreover, an exempt employee’s salary cannot fluctuate from week to week based on the number of hours worked. Doing so violates the salary basis test.

However, employers are permitted to change an exempt employee’s salary based on expected future absences. Basically, if an exempt employee usually works 40 hours a week but is expected to only work 30 hours a week then the salary can be changed to reflect the expected future absences. Just to be clear, the change must be made in advance and not as a response to the employee’s hours actually worked in a workweek.

The salary must still be at least $455 per week ($913 per week starting December 1, 2016 per the new DOL regulation) to satisfy the salary level requirement for exempt status under the FLSA.

It’s important to treat the salary reduction as you would any other salary adjustment for a change in work duties (i.e. full time to part time).

Another option is to change the employee to non-exempt for the duration of his recovery. Doing so may be a better option than changing the salary if the employee is expected to work an irregular schedule or if there is a potential for unexpected absences. The employee could then be returned to exempt status upon resuming his full-time duties.

HTH!

This entry was posted on Thursday, August 4th, 2016 at 12:52 pm and is filed under
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2 Responses to “Reducing Exempt Employee’s Salary”

  1. Mike in LA. Says:

    “For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;”
    I see this statement often in your replies concerning deductions from exempt employees salary.When the same employee is absent from work due to sickness or disability for less than a full day (works for an hour or so and goes home ill), is the employee to be paid their full salary if they have exhausted all of their PTO?

  2. hrlady Says:

    Hi Mike,
    Yes, an exempt employee who leaves work early (even if he only works 30 minutes) due to sickness or disability must still be paid their full day’s salary even if they’ve exhausted their PTO. Deductions from an exempt employee’s salary for absences due to sickness or disability are only permitted in full day increments, not partial days. HTH!

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