Content Last Revised: 4/23/04 ---DISCLAIMER---

29CFR541.603 - Effect of improper deductions from salary.

• Section Number: 541.603
• Section Name: Effect of improper deductions from salary.

    (a) An employer who makes improper deductions from salary shall 
lose the exemption if the facts demonstrate that the employer did not 
intend to pay employees on a salary basis. An actual practice of making 
improper deductions demonstrates that the employer did not intend to 
pay employees on a salary basis. The 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 warranting discipline; the time period during which the 
employer made improper deductions; the number and geographic location 
of employees whose salary was improperly reduced; the number and 
geographic location of managers responsible for taking the improper 
deductions; and whether the employer has a clearly communicated policy 
permitting or prohibiting improper deductions.
    (b) If the facts demonstrate that the employer has an actual 
practice of
making improper deductions, the exemption is lost during the time 
period in which the improper deductions were made for employees in the 
same job classification working for the same managers responsible for 
the actual improper deductions. Employees in different job 
classifications or who work for different managers do not lose their 
status as exempt employees. Thus, for example, if a manager at a 
company facility routinely docks the pay of engineers at that facility 
for partial-day personal absences, then all engineers at that facility 
whose pay could have been improperly docked by the manager would lose 
the exemption; engineers at other facilities or working for other 
managers, however, would remain exempt.
    (c) Improper deductions that are either isolated or inadvertent 
will not result in loss of the exemption for any employees subject to 
such improper deductions, if the employer reimburses the employees for 
such improper deductions.
    (d) If an employer has a clearly communicated policy that prohibits 
the improper pay deductions specified in Sec.  541.602(a) and includes 
a complaint mechanism, reimburses employees for any improper deductions 
and makes a good faith commitment to comply in the future, such 
employer will not lose the exemption for any employees unless the 
employer willfully violates the policy by continuing to make improper 
deductions after receiving employee complaints. If an employer fails to 
reimburse employees for any improper deductions or continues to make 
improper deductions after receiving employee complaints, the exemption 
is lost during the time period in which the improper deductions were 
made for employees in the same job classification working for the same 
managers responsible for the actual improper deductions. The best 
evidence of a clearly communicated policy is a written policy that was 
distributed to employees prior to the improper pay deductions by, for 
example, providing a copy of the policy to employees at the time of 
hire, publishing the policy in an employee handbook or publishing the 
policy on the employer's Intranet.
    (e) This section shall not be construed in an unduly technical 
manner so as to defeat the exemption.