consequences for improper deductions from salary

Employment Law Tip for Illinois Employers #3 Salary Deductions for Absences – Part 2

In part one of this article on salary deductions for absences, I described the Fair Labor Standards Act ("FLSA") regulation regarding salary deductions from exempt employees for absences due to illness.  In this blog, I will discuss how to ensure that you have a bona fide plan, policy or practice in place and the consequences of non-compliance with this regulation imposed by the FLSA and the Department of Labor.

A “bona fide” sick leave plan is a paid sick leave benefit provided to employees in the case of absence from work because of illness. It may include general PTO plans if the PTO plan permits the benefit to be used for illness.  As the Department of Labor has not provided a regulatory definition of a bona fide plan, they have provided general guidance as to requirements for a sick leave plan to be deemed bona fide for the purposes of salary deductions. Sick leave plans may be considered “bona fide” if all of the following criteria are met:

  • - There are defined sick leave benefits.
  • - The benefits have been communicated to eligible employees.
  • - The plan operates as described.
  • - The plan is administered impartially.
  • - The plan’s design does not reflect an effort to evade the requirements that exempt                                                               employees be paid on a salary basis.

There is no bright line rule regarding the number of days that must be provided pursuant to an employer’s plan or policy but the Department of Labor has indicated that a bona fide sick leave plan must provide pay for a reasonable number of absences on account of sickness.

Another helpful note regarding deductions is that employers cannot make deductions from an exempt employee's pay for absences caused by the employer or by the operating requirements of the business. If that employee is ready, willing and able to work, an employer cannot make deductions from the exempt employee's pay when no work is available.

Improper Deductions from Salary - What are the consequences?

If an employer is found to have an “actual practice” of making improper deductions from an employee salary (and does not reimburse the employee for improper deductions) the employer will lose the exemption status as to that particular employee and subject themselves to liability under the FLSA, including implications with State and Federal overtime requirements.

Factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to: the number of improper deductions, particularly as compared to the number of employee infractions necessitating deductions; the time period during which the employer made the improper deductions; the number and geographic location of both the employees whose salary was improperly reduced and the managers responsible; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions. If an “actual practice” is discovered, the exemption is lost during the time period of the deductions for employees in the same job classification working for the same managers responsible for the improper deductions. Isolated or inadvertent improper deductions will not result in loss of the exemption if the employer reimburses the employee for the improper deductions.

Illinois does not have any specific regulations as to deductions other than in order to make deductions, they must be required by law, for the benefit of the employee, in response to a valid wage assignment or deduction order or made with the express written consent of the employee, given freely at the time the deduction is made. See, 820 ILCS 115/9.

There are many issues to consider when determining whether or not you can deduct from an exempt employees salary for missing work, including whether you, as the employer, have a bona fide policy in place to compensate your employers for time missed from work for personal, vacation or illness.  For more information on the whether your sick/vacation policy would be deemed bona fide by the Department of Labor, when deductions from an employee’s pay would be permitted or any further employment related matters, please contact Dana Perminas, at 312-334-3474 or for more information.

You may find more information on employment law tips for employers in my previous blogs on Paycheck Deductions and FMLA Intermittent Leave.