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.