FLSA 2018-14: Calculation of salary deductions and section 13(a)(1) salary basis

FLSA2018-14 Opinion Letter

Calculation of salary deductions and section 13(a)(1) salary basis

January 5, 2018

Dear Name,

This is in response to your letter inquiring whether certain salary deductions are permissible for employees exempt under Fair Labor Standards Act (FLSA) section 13(a)(1)and the appropriate ways to calculate salary deductions for exempt employees. It is our conclusion that the proposed salary deductions are permissible.

You pose three questions relating to salary deductions under the salary-basis rules set forth in 29 C.F.R. Part 541. Your first question is whether a salary deduction is permissible when an exempt employee is absent for a full day, but does not have enough leave time in his or her leave bank to cover the entire absence. Your second and third questions relate to full day absences for days on which an employee is scheduled to work fewer or greater than eight hours and whether deductions for such absences may be made using an hourly equivalent. We assume from the facts presented in your letter that the full day absences are either for personal reasons or for illness or disability and that your client has a “bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability.” We further assume that the employees are employed in a bona-fide executive, administrative, or professional capacity, as those terms are defined in the regulations, 29 C.F.R. Part 541, and fulfill the requirements for the section 13(a)(1) exemption.

An employee will be considered to be paid on a salary basis if he or she “regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.602(a). Deductions may be made, however, when the employee is absent from work for one or more full days for personal reasons, other than sickness or disability. 29 C.F.R. § 541.602(b)(1). Thus, if an employee is absent for two full days to handle personal affairs, the employee’s salaried status will not be affected if deductions are made from the salary for two full-day absences. Id. If an exempt employee is absent for one and one-half days for personal reasons, however, the employer may deduct only for the one full-day absence. Id.

Deductions from salary may also be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents), if the deductions are made “in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability.” 29 C.F.R. § 541.602(b)(2). Thus, if the employer’s particular plan provides compensation for such absences, deductions for absences of one or more full days because of sickness or disability “may be made before the employee has qualified under the plan, policy or practice, and after the employee has exhausted the leave allowance thereunder.” Id.

Deductions from an employee’s guaranteed salary for absences may only be taken under section 541.602(a) if the employee misses one or more full days of work. Id. The regulations do not permit salary deductions for partial day absences. If the absence is for one full day, however, the regulations do not prohibit a deduction equivalent to a partial day salary. See Wage and Hour Opinion Letter May 27, 1999 (copy enclosed). The regulations only prohibit deductions from an employee’s guaranteed salary for absences that are less than one full day in duration. In other words, if the absence is one full day in duration, the employer may deduct one full day’s pay or less. Therefore, in answer to your first question, if an employee is absent for one or more full days, but does not have enough time in his or her leave bank to cover the entire absence, the employer may make a deduction from the employee’s pay for any portion of the full-day absences that is not accounted for by the leave bank.

You also ask whether an employer may calculate the permissible deduction using the hourly equivalent of the time missed by the employee if the day of the absences is a day on which the employee is scheduled to work fewer or greater than eight hours. The regulations provide that when taking a permissible deduction under 29 C.F.R. § 541.602(b), an “employer may use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee.” 29 C.F.R. § 541.602(c). Therefore, if an employee is absent from a shift scheduled to be shorter or longer than the employee’s regular shift, the employer may take a deduction in proportion to the number of hours missed. Again, however, you should note that deductions are not permissible if the employee is absent for less than one full day of work.

Sincerely,

Bryan L. Jarrett

Acting Administrator