Are you Putting your Exempt Employees Status in Jeopardy?

Posted on July 13, 2016

Deducting from an Exempt Employee’s Pay – When Can You Do it?

Most of us know that an exempt employee is someone who is paid on a salary basis, makes at least twice the minimum wage in California (currently $43,680 in California, going up federally to $47,476 on December 1) and performs exempt job duties that fall under the exempt job categories laid out by the Department of Labor Standards Enforcement (DLSE) in California.

However, did you know that there are certain payroll practices that can put the exemption status of your exempt employees in jeopardy? Here are some things you should be careful of:

Deductions from Exempt Employees’ Pay is not OK for:

• Business Closures /Unavailability of Work
• Safety Violations
• Disciplinary Reasons
• Arriving Late / Leaving Early
• Sickness or Accident (unless company has bona-fide sick pay plan)
• Jury Duty, Witness, Military Leave

Reducing an Exempt Employee’s Pay (making them part-time) is only OK if:

• Change is necessary and temporary
• Employee still makes 2x the minimum wage

Managing Partial Exempt Employee’s Day Absences:

• Cannot dock from pay for partial day absences for illness or personal reasons
• Deducting from time off banks is ok for partial day absences of four hours or more
• If vacation, PTO, or sick are at zero or are insufficient the employee must be paid for full day

Example: An exempt employee works for two hours and only has four hours of paid leave available, four hours may be deducted from the leave bank and the employee would still need to be paid for the entire day   Example: An exempt employee works for two hours and has zero hours of paid leave available: the employee would need to be paid for the entire day

Managing Exempt Employees Absences for Illness:

• If an exempt employee has a full day absence for illness the employee still must be paid for full day if time off balances are insufficient to cover the day.
• If balances are at zero then the employee’s salary can be docked for the full day

Example: An exempt employee takes off eight hours due to illness and only has three hours of paid leave available: 3 hours may be deducted from the leave bank and the employee would still need to be paid for the entire day

Example: An exempt employee takes off eight hours due to illness and has zero hours of paid leave available: the employee can be docked for the full day absence

Strategies to stay compliant while preventing abuse from your exempt employees:

• If exempt employee has insufficient hours in bank to cover a full day, require they take the full day off without pay
• Require combination of vacation and sick time to cover absences
• Allow negative balance in time off bank (beware on final paycheck- you are not allowed to deduct for negative vacation or PTO balances on the final paycheck)

Reminder – always add all new employment policy or procedure materials that you’ve implemented to your Employee Handbook!

Lauren Sims is the author and a principal HR Consultant with eqHR Solutions.

When you require HR advice or help navigating the ever-changing landscape of California and Federal Employment Laws and Regulations, call us for a no obligation consultation.

eqHR Solutions is a leading human resources consulting firm providing tactical and strategic human resources support, plus ADP payroll product training, for all size businesses in Southern California and the San Francisco / Bay area.