Legal Limits on Pay Docking and Unpaid Suspensions
by
Lisa Guerin, J.D.
Find out when you can reduce a salaried employee’s pay -- without running afoul of wage and hour laws.
Some employers discipline their employees by docking their pay or putting them on unpaid suspension for violating workplace rules. However, such a policy can create big problems if the employee whose pay is reduced is exempt from overtime -- that is, the employee is not entitled to overtime pay because he or she is paid on a salary basis and generally exercises a certain degree of responsibility and discretion in doing the job. (For more information on who is exempt from overtime rules, see When Do I Have to Pay Overtime?)
How Does Pay Docking Cause a Problem?
To qualify as exempt, employees have to be paid a set amount each pay period, without any reductions based on the quantity or quality of work they do. If you dock their pay, you are treating them like nonexempt employees, and the law might consider them as such -- and thereby entitle them to overtime. As you might guess, the money you save by docking the employee’s salary could be far exceeded by the money you have to pay out in overtime.
Who Qualifies as a Salaried Employee?
Under federal law, exempt employees -- those who are not entitled to overtime -- must earn at least $455 per week (or $23,660 per year). To be exempt, employees must be paid on a salary basis. This means that the employee’s salary is a fixed amount that doesn’t depend on how many hours the employee works, how much work the employee accomplishes, or the quality of the work. As long as employees do some work during the week, they are entitled to their full weekly pay, unless the time they take off falls into one of the exceptions described below.
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