Deductions From Pay Can Be Dangerous!

Posted on December 31, 2007 by Jaime Powell

Are you making improper deductions from employees’ pay without even realizing it?  Have you ever had a manager who is consistently late and you want to impose a fine equal to 15 minutes of pay for each occurrence?  Or an hourly employee who loses or destroys company tools or equipment and you want them to pay you back for what they broke?  What about an employee who resigns while he or she has a negative leave balance? In all these situations, making a deduction from pay makes logical sense.  But these deductions may be contrary to wage and hour law.

First, many states have laws requiring employers to obtain employee authorization prior to making deductions from pay.  The Ohio wage and hour statutes refer to “employee authorized deductions” generally and specifically require employers to have express authorization before making deductions for damage to tools or equipment.  See Ohio Rev. Code §§ 4113.15; 4113.19.  Pay careful attention to state law before you make any deductions from pay!  You should also consider including a general deductions policy in your handbook, and realize that you may need to obtain specific waivers for certain deductions from pay.

Second, the Fair Labor Standards Act may affect the amount of money you an deduct from an employee’s paycheck.  Deductions/reimbursements that are primarily for the employer’s benefit should not reduce a non?exempt employee’s pay below minimum wage.  Likewise, exempt employees must receive a guaranteed salary of $455 per week — any policy or practice that violates this “salary threshold” could endanger the exemption.

Third, employers are very limited in what absence-related deductions can be made from exempt employees’ paychecks. Typically, employers can only make deductions for absences of one or more full days, related to the following reasons: absences for personal reasons other than sickness or disability; absences caused by sickness or disability if a bona fide plan, policy, or procedure for providing compensation for loss of salary occasioned by sickness or disability exists; and unpaid disciplinary suspensions for violation of workplace conduct rules if a written policy applicable to all employees is in place.   See 29 C.F.R. § 541.118.  Keep in mind, however, that you can make partial?day deductions from exempt employees’ paychecks for FMLA?related absences.  Likewise, there is no violation for requiring an exempt employee to use paid leave for a partial day absence.

The moral of this story is that deductions from pay can be complicated. A misstep can result in legal liability, or worse, jeopardize the exempt status of multiple employees. Bottom line when making pay deductions: Proceed carefully before rushing into action.
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Sixth Circuit Holds That Gas Station Manager Is An Executive Employee Under the FLSA

Posted on December 28, 2007 by Rob Stalter

Adding clarity to an often-litigated area of wage and hour law, the Sixth Circuit recently held that a small store manager was exempt from the FLSA's overtime requirements despite her performance of non-managerial tasks and close supervision by her district manager. The case – Thomas v. Speedway SuperAmerica, LLC, No. 04-00147 (6th Cir. 2007) – involved a Speedway  gas station and convenience store manager who Speedway claimed was an exempt “executive employee” under the Fair Labor Standards Act. Even though the store manager was the most senior employee at the store, she was supervised by a district manager who visited the store twice a week. She was expected to work at least 50 hours per week, and often worked much more than that. She received a $500 weekly base salary as well as managerial bonuses equaling a percentage of the gross profit from certain products sold in the store. As for her day-to-day work duties, the manager spent about 60 percent of her time performing non-managerial tasks such as stocking merchandise, sweeping bathrooms, operating the cash register, and performing routine clerical duties.  The remaining 40 percent of her time was spent performing several management functions, including supervising current employees, hiring new employees, preparing weekly work schedules, handling employee complaints, evaluating employees, and terminating employees.

After Speedway terminated the manager in 2003, she filed a lawsuit in the U.S. District Court for the Southern District of Ohio alleging, among other claims, that Speedway violated the FLSA by misclassifying her as exempt and failing to pay her overtime compensation as required by the Act. The district court held that the manager was an exempt employee under the FLSA and, as such, Speedway was not required to pay her overtime. The manager then appealed to the Sixth Circuit, which upheld the ruling for Speedway.  

In its opinion, the court explained that it “cannot rely on the plaintiff’s or the employer’s description of the plaintiff’s position or authority; instead we must look at the plaintiff’s actual duties to determine whether she qualifies for the executive exemption.” The court noted that, while being “in charge” does not automatically qualify an employee as an executive employee, in this case, the fact that the manager was in charge of the store for a significant period of time each week made her an executive employee. And, even though she was supervised by someone else and was required to follow policies set by Speedway’s management, the manager still exercised everyday discretion in how she performed her duties.

The court also focused on the relative importance of her managerial and non-managerial job duties to the company. The court stated that if the store manager “failed to perform her nonmanagerial duties, her Speedway station would still function, albeit much less effectively. After all, most of us – even if unwillingly – have visited and spent our money at filthy gas stations with sparsely stocked shelves.” But if the store manager “failed to perform her managerial duties, her Speedway station would not function at all because no one else would perform these essential tasks.” 

Although the court in this case found that Speedway properly classified its store manager as exempt, the case highlights the importance of properly classifying employees. If Speedway had been wrong in its classification, it would have owed the store manager tens of thousands of dollars for overtime it never paid her – not to mention being on the hook for the store manager’s attorneys’ fees. Most importantly, Thomas highlights that employers’ focus when making exempt v. non-exempt employee classification decisions needs to be on employees’ actual duties – not generic (and sometimes inaccurate) job descriptions. 
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