Pop quiz time. If we terminate a salaried, exempt employee early in the week, do we have to pay them for the entire week?
No, you’re not required to pay this employee through the end of the week. The general requirement to pay a salaried, exempt employee for the full week doesn’t apply in the first or last week of employment if the employee didn’t work the full week. Instead, you may pay a proportionate part of their full salary based on the time they actually worked that week. This deduction is allowed under the Fair Labor Standards Act.
What does the Fair Labor Standards Act (FLSA) say?
Pay deductions are permitted in an exempt employee if:
- The exempt employee is absent from work for one or more full days for reasons other than illness or disability.
- the deduction on payment is made by a genuine plan, policy, or practice of compensating for lost wages due to illness;
- need to compensate employees for jury or witness fees or military pay;
- the penalties are imposed in good faith for serious violations of safety rules;
- there are unpaid disciplinary suspensions of one or more full days imposed in good faith for violations of workplace conduct rules.
- Additionally, an employer is not required to pay an exempt employee's full salary during the first or last week of employment or during weeks when the employee takes unpaid leave under the Family and Medical Leave Act.
While an employer does not need to pay an exempt employee absent from work for any reason during a workweek, shorter absences may not be eligible for pay deductions. Furthermore, state wage deduction laws may impose additional restrictions on pay reductions, so employers should review them for additional compliance requirements.
If improper deductions are made, the exempt status of the employees and others in the same class may be lost, and they may be required to pay overtime and penalties.
How to avoid improper deductions?
Employers who follow the safe harbor rules in 29 CFR 541.603 may correct improper pay deductions without penalty. Employers can protect themselves under the safe harbor provision by doing the following:
- Creating a communicated policy that forbids improper deductions and includes a complaint mechanism.
- Reimbursing employees for any incorrect deductions promptly.
- Making a good-faith commitment to future compliance.