Dock or Discipline?
Posted on 06-Jan-12 by The Timekeeper
One method many employers use to discipline employees is to dock their paychecks. However, you need to be careful to avoid problems, such as docking so much you reduce an employee’s pay below minimum wage or taking improper deductions for disallowed items. And when it comes to the paychecks of salaried exempt employees, you need to be especially careful to avoid having them reclassified as non-exempt and incurring overtime costs.
For a practical example, recently Power Line Services was sued in federal court in Texas (Thurmon, et al. v. Power Line Services Inc., et al.) under the terms of the Fair Labor Standards Act, alleging the company took improper deductions from the paychecks of exempt employees, thereby proving those employees were actually non-exempt.
Apparently, the company’s policy was to deduct from employee’s paychecks any amounts they charged on their company credit card but for which they failed to provide an itemized receipt. The lawsuit claims these deductions ranged from $3.44 for a lost receipt from a convenience store to $2,500 for repairs to a company issued truck.
The company moved for a dismissal, but their motion was denied.
The problem is, back in 2006, the US DOL issued an opinion letter that declared “any employer policy that requires deductions from the salaries of its exempt employees to pay for the costs of lost or damaged tools or equipment” results in improper deductions that invalidate the employees’ classification as exempt. While the opinion letter addressed a specific situation related to lost or damaged tools, many legal experts expect the DOL to invalidate any exempt employee payroll deductions that could be viewed as a penalty for violating company policy.
Does this mean you have to just “let it go” when your exempt employees commit an infraction? Not at all. You are permitted to discipline employees for violating your policies. You just can’t dock their pay. (At least, not if they’re classified as exempt and you’d like them to stay that way.)
Otherwise, you risk having not only the employee you docked, but all similarly-situated exempt employees reclassified as non-exempt… and you potentially being on the hook for overtime pay. As satisfying as it might be on one level to dock their pay and recoup money you might think they’ve cost you, the docking will cost you a lot more in the long run.
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