Oops, I did it Again (Deduction-wise, that is)

What should your business do if you discover that your payroll department has been making improper deductions from a salaried worker's pay?

Under the New Fair Pay Overtime regulations passed by the U.S. Department of Labor (DOL) on August 23, 2004, employers can now make deductions from salary in seven situations without ruining a worker's exempt status.

Deductions from an exempt employee's salary are permissible when the absences are: (1) for one or more full days for personal reasons other than sickness or disability; (2) for one or more full days due to sickness or disability if the deduction is made pursuant to a bona fide plan, policy or practice of providing compensation for salary lost due to illness; (3) to offset amounts employees receive as jury or witness fees, or for military pay; (4) for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions; (5) for the initial or terminal week of employment; (6) for penalties imposed in good faith for infractions of safety rules of major significance; or (7) for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.

The DOL understands that mistakes are made sometimes.  To create a "safe harbor" for your company, you should implement a policy dealing with improper deductions.  To do this, you should create a policy that states:

If you believe that an improper deduction has been made to your salary, you should immediately report this information to your direct supervisor, or to the Human Resources Department.

Reports of improper deductions will be promptly investigated. If it is determined that an improper deduction has occurred, you will be promptly reimbursed for any improper deduction made.

Implementing such a policy and inserting it in your employee handbook will provide your organization with a defense to claims that you intentionally ignored the wage and hour laws, and reduce your chances of being sued for damages under federal law.