As many of you know, the issue of when an employer can make deductions from an employee’s wages comes up with regularity. The legality of doing so is complicated and depends, to some extent, on whether the employee is exempt (salaried) or non-exempt (hourly). The Department of Labor (DOL) recently issued an opinion letter that addresses whether an employer may deduct from the salaries of exempt employees or require them to reimburse the company for damage to or loss of company equipment without jeopardizing the employees’ exempt status under the Fair Labor Standards Act. The highlights from the opinion letter are summarized below:
- To be considered an exempt employee, the employee must be paid a predetermined amount not subject to reduction because of variations in the quality or quantity of the work performed.
- Subject to certain explicit and limited exceptions, an exempt employee must be paid his/her full salary for any week in which the employee performs any work.
- The DOL has ruled that none of the specified exceptions contemplates charging employees a fine for loss, damage or destruction of company equipment, property or funds.
- With respect to non-exempt employees, the Opinion Letter provides that deductions for loss or damage to company property or equipment can be made from the employees’ wages, provided the deduction does not reduce the employees’ pay below the applicable minimum wage (which varies state by state).
Therefore, to the extent it is your company’s policy or practice to require deductions from the salaries of exempt employees to pay for the cost of lost or damaged tools or equipment, you should immediately revise your policy and/or discontinue the practice. Please note, the opinion letter does not address whether deductions can be made for recovery of employee theft or payroll advances/loans. Such deductions would be permissible.