EXEMPT EMPLOYEES

DOCKING PAY AND DEDUCTING TIME

Steven Cesare, Ph.D.

A business owner from Hawaii contacted me the other day to discuss an exempt employee who routinely leaves work early, all the while expecting to be paid his entire weekly salary. I told the owner that the exempt employee is completely correct in his expectation, in that exempt employees are routinely judged by the singular standard of achieving their work duties, regardless of how much time it takes to complete those duties. If the exempt employee is completing all of his/her work responsibilities in less than a full work week, that is up to the owner to recalibrate the exempt employee’s workload, at the owner’s discretion.

Beyond workload, exempt employees are bound by two features: pay and time. If an exempt employee performs any work during a daily work shift, that exempt employee must be paid his/her entire pay for that day; companies cannot dock an exempt employee’s pay for partial-day absences. For example, if the exempt employee works any time beyond the de-minimis standard (i.e., a couple of minutes) during a work shift, that employee must receive a full day of pay.

However, while the exempt employee’s pay cannot be docked in partial increments, the company can deduct the number of nonwork hours from the exempt employee’s PTO balance as appropriate. Thus, for example, an exempt employee who worked only one hour during a work shift must be paid for the entire day; yet can have seven hours of PTO deducted from his/her leave balances as appropriate. To reiterate, while exempt employees’ pay cannot be docked for partial day work, their leave balances can be deducted accordingly.

As I explained to the business owner, this process continues until the exempt employee exhausts all remaining available time off (i.e., PTO). At that point in time, the exempt employee could lose a full day of pay for missing a full-day of work. Here are some basic examples:

Employee works 6 hours on each workday (MTWTF) and takes 2 hours of PTO each day
- Gets paid for 40 hours of work, and has 2 hours of PTO deducted for each of the five days.
Employee works MTWT and uses last remaining 8 hours of PTO on Friday
- Gets paid for 40 hours of work, and PTO balanced is reduced to 0
Employee works MTWT and has 0 hours of PTO, and works 1 hour on Friday
- Gets paid for 40 hours of work
Employee works MTWT and has 0 hours of PTO, and takes off on Friday
- Gets paid for 32 hours of work
Exempt Employee works MTWT and has 1 hour of PTO, and takes off on Friday
- Gets paid for 33 hours of work

Given the delicate nature related to the complexities associated with exempt employee compensation, I reminded the owner to ensure the exempt classification process was conducted accurately, that the company had a bona fide Vacation/PTO Plan in place, and that the Employee Handbook makes reference to exempt employees’ partial day pay and leave balance deductions.

If you have any questions or comments about this topic or anything else related to human resources, simply call me at (760) 685-3800.