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Can I Suspend An Exempt Employee for One Day?

Date: July 1 2005

Excerpted from New Mexico Employment Law Letter, written by attorneys at Tinnin Law Firm, A Professional Corporation.

Q: I own and operate a retail store in Roswell. Yesterday, I found out that my manager had left in the afternoon on the previous day to go to a movie with his wife while he was supposed to be working. As you can imagine, I was furious. I decided I was going to dock his pay for the time he was gone and suspend him for a day. Can I do this?

A: If this had happened a few months ago, the answer would be no under the Fair Labor Standards Act (FLSA). But the regulations have been revised effective August 23, 2004, and under the new regulations, your one-day suspension of an exempt employee (i.e., one who isn''t entitled to receive overtime pay) would be acceptable if it''s imposed in good faith in accordance with a written workplace misconduct policy that''s applicable to all employees.

To be entitled to exempt status, the employee must meet both the "job duties" test for the exemption sought (administrative, executive, or professional) and be paid on a salary basis. Under the old regulations, a disciplinary suspension of an exempt employee had to be for a full week to protect the "salary basis" requirement. In other words, the employee had received his full salary for the week. Thus, docking an employee''s salary for less than a full week under the old regulations would''ve destroyed the salary basis of the employee''s wage and remove him from exempt status.

Deductions Now Permitted For One or More Full-day Absences

There aren''t many instances of misconduct serious enough to suspend employees for a whole week but not serious enough to fire them, so most employers never suspended any exempt employees for any period of time under the old regulations. But the new regulations have changed all that.

Now, under the regulations, which take effect August 23, 2004, an employer may suspend an exempt worker for less than a full week for violating "workplace conduct rules," provided the suspension is imposed under a written policy applicable to all employees.

The regulations still leave questions unanswered, such as how you differentiate between "misconduct" and "poor performance." For example, when, if ever, does chronic tardiness or absenteeism become misconduct instead of poor performance?

Liability For Improper Deductions Limited

The new regulations also address what happens if you make improper deductions from an employee''s pay. For example, what would have been the result if you had docked your manager''s pay for the time he took off from work to go to the movie? Under the old rules, not only would the manager have lost his status, but there''s a good chance that any other employees in the same job classification would lose their exempt status as well - even if they worked at different locations and reported to different managers and their pay was never inappropriately docked.

Under the new regulations, however, the potential liability has been lessened. In most circumstances, the exemption is lost only during the time period in which improper deductions were made and for employees in the same job classification working for the same managers responsible for the actual improper deductions.

Thus, according to an example given in the new regulations, if a manager at a company facility routinely docks engineers'' pay for partial-day absences, all the engineers at that specific facility whose pay could have been docked by the manager would lose the exemption. But managers working at other facilities or working for other managers would remain exempt.

The new regulations go even further in limiting the consequences of improper deductions by providing that if you adopt certain measures, you won''t lose an employee''s exempt status even if you inadvertently make improper deductions. Thus, the regulations provide that if an employer has a "clearly communicated policy" prohibiting improper pay deductions and includes a complaint mechanism, reimburses employees for improper deductions, and makes a good-faith commitment to comply in the future, the exemption won''t be lost for any employee unless the employer willfully violates the policy by continuing to make improper deductions after receiving complaints.

Furthermore, if the employer fails to reimburse employees for improper deductions or continues to make deductions after receiving employee complaints, the exemption is lost for employees in the same job classification working for the same managers responsible for the improper deductions for the time period in which they were made.

Bottom line

We''ve covered just some of the changes made in the new overtime regulations. The new regulations represent an effort to simplify the tests used to determine whether the so-called "white-collar" overtime exemptions are applicable to a given employee or position. As you can see from the answer to the question, they also provide flexibility to employers in suspending exempt employees without pay and lighten the penalties for employers that make improper deductions.


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