Exempt Employees can not be Required to Pay for Equipment Damage

April 13, 2006 (PLANSPONSOR.com) - Deducting amounts from the salaries of exempt employees, or requiring them to reimburse the company, for damage to or loss of company equipment would violate the salary basis requirements of the Fair Labor Standards Act, according to a Department of Labor (DoL) opinion letter.

In its letter the DoL said “salary basis” compensation for an exempt employee means they must be paid “a predetermined amount . . . not subject to reduction because of variations in the quality or quantity of the work performed.”   The DoL said none of the exceptions listed in regulations contemplates charging employees a fine for damage to or loss of company equipment.

Deductions for damage to or loss of company equipment violate the regulation’s prohibition against reductions in compensation due to the quality of the work performed by the employee, according to the letter.  The DoL said it has been the Wage and Hour Division’s long-standing position that exempt employees must actually receive the full predetermined salary amount for any week in which the employee performs any work unless one of the specific regulatory exceptions is met.

Permissible exemptions, listed by SHRM, include:

  • Full-day deductions when an exempt employee is absent for personal reasons aside from sickness or disability.
  • Deductions for absences of one or more full days because of sickness or disability if the deductions are in accordance with a bona fide plan, policy or practice of compensating for loss of salary due to such sickness or disability.
  • Offsets for jury fees, witness fees or military pay.
  • Penalties imposed in good faith for infractions of safety rules of major significance.
  • Deductions for unpaid disciplinary suspensions of one or more full days if imposed in good faith for infractions of workplace conduct rules.

The department further clarified that it would not matter whether an employer implements a policy for reimbursement of damages by making periodic deductions from employee salaries, or by requiring employees to make out-of-pocket reimbursements from compensation already received.  Either approach would result in employees not receiving their predetermined salaries when due on a “guaranteed” basis or “free and clear” and would produce impermissible reductions in compensation because of the quality of the work performed under the terms of the employer’s policies, the letter said.

The company to which the letter was directed requires deductions from the employees’ wages for the costs of loss or damage to the employer’s tools and equipment that the employer provides for the employees to perform their jobs.   The DoL pointed out that, with respect to nonexempt employees, an employer may not lawfully require an employee to pay for an expense of the employer’s business if doing so reduces the employee’s pay below any statutorily-required minimum wage or overtime premium that is due.

The DoL opinion letter is here .