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FLSA-Deductions From Salary Of Exempt Employees

Why Deductions From Salary Of Exempt Employees Is Not Permitted Under The FLSA

           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'.  Many companies have a policy stating that its employees must reimburse the employer for any damage to or loss of company property and equipment caused by the employee.  A number of of these policies include a signed agreement by the employee, stating that an employer may deduct the cost of any such loss or damage from an employee’s last paycheck.  Other company policies state that an employee shall reimburse the employer out-of-pocket for any loss of or damage to the company’s property.

            The United States Department of Labor has issued an opinion stating that an employer may not make deductions from an exempt employee’s salary for the purposes of reimbursing an employer for damage caused by the employee.  Not only is the employer prevented from making deductions from the employee’s salary, the employer is also prohibited from entering into an agreement that requires the employee to make out-of-pocket payments to the employer.  The Department of Labor has stated that allowing this type of reimbursement or deduction would defeat the exemption permitted by the FLSA because the salaries would not be guaranteed to the employee as required by law.

             The effect of a policy of reimbursement that violates the FLSA could possibly be a tremendous financial burden for the employer to bear.  If a policy is incorporated by a company that violates the exemption rules, the Department of Labor may declare any exemption the employee may have had was lost and that employee should have never been treated as exempt and assess the company large sums in overtime wages and penalties.  Employers may rely upon 'safe harbor' provisions in the event of an unintentional violation.

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