The Fair Labor Standards Act, or FLSA, was passed in 1938 and established many of the workplace conditions we now consider a given. One of the topics the bill covers is an employer’s right to dock employees’ pay. Docking pay can be a necessity in some circumstances, so it’s important to understand what you can and cannot do, and there are some specific guidelines that apply to salaried employees. Understanding these requirements will ensure you pay your employees correctly and avoid liability.
Reasons You May Need to Dock an Employee’s Pay
The main reason an employer might dock pay is for time not spent working. Other reasons, such as employee errors, cash shortages or damaged inventory, are potentially permissible, too. The FLSA necessitates only that a non-exempt employee’s pay cannot be docked below the minimum wage, but many state regulations prohibit pay deductions for any reason other than hours not worked. To determine the reasons for which you are permitted to dock pay, you should consult your local and state labor regulations.
The Difference Between Exempt and Non-Exempt Employees
Whether or not, and the extent to which, you can dock an employee’s pay depends on whether they are exempt or non-exempt as defined by the FLSA. Exempt employees, of course, are generally salaried, and the term non-exempt typically refers to employees who are paid by the hour. Docking the pay of an hourly associate is usually permissible, but it’s a little more complicated if your employee is salaried.
The difference between exempt employees and non-exempt employees matters for several reasons. Whether it’s for unworked time or employee error, docking pay for salaried employees is treated the same in the eyes of the FLSA. Giving employees exempt status and salaried pay has pros and cons for both parties. One of the items covered by exemption, for example, is overtime.
A salaried employee who works more than 40 hours in a week is exempt from earning overtime, among other conditions. This is because exempt status entitles an employee to a set pay rate, regardless of the number of hours they work. If your employee works 60 hours one week, he or she will expect to earn the same pay as weeks when she or he only work 32. If you were to dock pay during the week the employee worked only 32 hours, you would negate her or his exempt status.
As soon as you begin deducting pay for an employee’s missed hours, you nullify the agreement a salary contract typically instates, and you become liable for hourly wages—including overtime previously worked—an employee may try to claim. An employee whose pay is docked for missing work is no longer exempt, so he or she must also be paid for any instance she or he worked more than 40 hours in a week.
Considering When to Give Employees Exempt Status
As an employer, the greatest benefits of paying employees salaried wages are simplifying pay and avoiding costly overtime charges. Exempt employees work most often in white-collar positions like office or administrative positions or in the information sector where this structure is beneficial. In exchange for expecting your associates to work overtime without a pay difference, you should accept that they may also work fewer than 40 hours without a pay difference. This is why you should carefully consider all options, as well as employee performance, before giving an employee exempt status.
Though you shouldn’t dock the pay of a salaried employee, you can learn a lot by reviewing the FLSA as well as your state and local employment laws. Doing so can also help you determine whether it will benefit you more to pay associates with an hourly or salaried wage. Salaries provide both benefits and disadvantages, but if you have a team of hard-working associates, the benefits can outweigh the risks.
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