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FLSA-Exemption Safe Harbor-Exempt Employees

Safe Harbor For Violation of Overtime Regulations

            According  to the Fair Labor Standards Act ("FLSA"), some employees are exempt from the payment of an enhanced rate of pay for each hour over forty (40) in a work week, also known as 'overtime'.  Most employers have at least one employee that is exempt.  Many employers do not realize they can unintentionally violate the overtime provisions of the Fair Labor Standards Act (“FLSA”) and create a situation whereby the exemption is lost.

            An employer can cause this situation if they deduct certain sums from the exempt employee’s paycheck.  Pursuant to the FLSA and the regulations related to exemptions, an employee who is exempt from overtime is entitled to receive full pay in every week during which that employee performs any work, whatsoever.  Except under very limited circumstances, an employer is not permitted to make any deductions, apart from those required by law or for benefits such as medical insurance, from an exempt employee’s salary.  Many employers do not realize that it is a violation of the FLSA for an employer to make deductions from salary due to an exempt employee’s: absence from work in increments of less than one week, lateness, violations of company policy, or damage to company equipment . 

            If an unauthorized deduction is made, that deduction could unwittingly create a situation where the employee will become a non-exempt employee during the time period for which the deductions occurred.  This means that the employer would be required to pay an employee for all hours work plus time and a half for any hours over forty (40) per week.  The loss of exempt status not only applies to the employee for whom improper deductions were made, but could also apply to any employee in the same job classification and working for the same managers or supervisors responsible for the improper deductions.  Under this rule whether it is a supervisor, the president or the human resources department that is making the deductions will have an impact on the number of employees who will lose their exempt status.  Therefore, improper deductions have the potential to become costly.

            The Department of Labor has provided employers with an affirmative defense if improper deductions are erroneously made by the employer.  An employee will not lose his or her exempt status if the employer has a clearly communicated policy that prohibits improper deductions and sets forth a clear complaint procedure.  The employer’s policy does not need to be complex.  It merely needs to state that the employer will not make deductions which are prohibited by the FLSA from its salaried employees’ pay.  The Department of Labor has found that such a policy would be considered clearly communicated if it is published in an Employment Handbook or located upon the company intranet.  The employer must also include information that indicates how an employee should report the violation, such as to notify the human resources department, supervisor or owner in writing.

            In 2005, the Wage and Hour Division of the Department of Labor collected over $ 166 Million in back wages owed to employees and assessed civil penalties of over $4.3 million against employers.  The majority of back wages collected were due to violations of the Fair Labor Standards Act overtime pay requirements.  The simple steps outlined above may prevent an assessment by the Department of Labor in back wages and penalties due to inadvertent deductions from exempt employees’ salaries.

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