Magazine article Management Review

The High Price of Docking Paychecks

Magazine article Management Review

The High Price of Docking Paychecks

Article excerpt

Companies that dock as little as a partial day's pay when one white-collar employee takes an afternoon off risk an automatic conversion of their entire salaried workforce into hourly workers who are eligible for back overtime pay, according to recent U.S. Labor Department interpretations of wage and hour regulations and a series of related court decisions. As a result, industry experts estimate that employers may now unknowingly owe white-collar workers up to $60 billion in overtime back pay and fines.

In addition to being financially devastating, corporate officials say that the interpretation could threaten the existence of flexible-leave and family-friendly workplace programs. Under the 1938 Fair Labor Standards Act, executive, administrative and professional employees are exempted from overtime pay provisions. To qualify for this exemption, a worker must be paid on a "salary basis."

The Department of Labor has recently interpreted that standard to mean that when a company docks a salaried employee's pay or accrued leave for part of a working day, then that employee is being treated as an hourly worker. This action automatically converts all of the company's white-collar employees into hourly workers eligible for back overtime pay. If the employee is docked a full day's pay for partial day's absence, however, the exemption stays intact.

The penalty for violating this salary-basis test is severe. Once the Labor Department determines that an employee is no longer exempt, the employer then owes all of its white-collar workers back pay for any overtime they may have worked during the past two years - three years if it's determined that the company knowingly violated the rules. …

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