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Reducing Exempt Employee Salaries

We’re often asked whether the pay of exempt employees can be reduced if they work less than 40 hours in a week. And the answer is almost always no.

The very idea of the overtime exemption, at least in the case of White Collar employees, is that you are paying them to complete important tasks that require use of their own discretion and are less (or not at all) time-clock-sensitive. You pay them more than the bare minimum and can expect more than the bare minimum in terms of time commitment. But if they can complete their tasks in less than 40 hours – because they have used their discretion well – that’s okay too.

However, there are situations where a pay deduction is allowable:

  • When they are absent from work for one or more full days for personal reasons other than sickness or disability;
  • When an exempt employee is absent for one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide sick leave plan (5+ paid days are offered per year, plus additional requirements);
  • To offset amounts received as witness or jury fees, or for military pay.

If an employee is absent, but their time away doesn’t fit into one of the scenarios above, such as a partial day absence for personal reasons or sickness, you may reduce the hours in the employee’s PTO, vacation, or sick leave bank – but only if your policy says you will do that. And if the employee has used up all the hours in their bank already, you must still pay their full salary.

Content provided by TPC HR Support Center.