(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 § 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.
Notes of Decisions
John Orton v. Johnny's Lunch Franchise, LLC, 668 F.3d 843 (6th Cir. 2012).
· cites it 6× “29 C.F.R. § 541.603 . An improper deduction alone will not necessarily render an employee non-exempt: “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.”
Torres v. Gristede's Operating Corp., 628 F. Supp. 2d 447 (S.D.N.Y. 2008).
· cites it 4× “603 (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.”). The question of the employer’s intent “cannot be answered by simply dividing the number of…”
Baden-Winterwood v. Life Time Fitness, Inc., 566 F.3d 618 (6th Cir. 2009).
· cites it 5× “Applying these tests, the district court concluded that certain Plaintiffs were entitled to overtime compensation but only for the three pay periods occurring in November and December, 2005, when actual deductions were taken from Plaintiffs’ pay.”
Roosevelt Watkins v. The City of Montgomery, Alabama, 775 F.3d 1280 (11th Cir. 2014).
· cites it 5× “Watkins contended that he was entitled to overtime compensation as a nonexempt “first responder” under the DOL’s “first responder” regulation, 29 C.F.R. § 541.603 (b). In response to his claims, the City raised an affirmative defense under the executive exemption to the FLSA’s…”
Rebischke v. Tile Shop, LLC, 229 F. Supp. 3d 840 (D. Minnesota 2017).
· cites it 11× “See 29 C.F.R. § 541.603 . The Department of Labor (“DOL”) provides the following relevant guidance about the effect of improper deductions: (a) An employer who makes improper deductions from salary shall lose the exemption if the facts demonstrate that the employer did not…”
Strait v. Belcan Eng'g Grp., Inc., 911 F. Supp. 2d 709 (N.D. Ill. 2012).
· cites it 6× “Under 29 C.F.R. § 541.603 (b), all employees with the “same job classification working for the same managers responsible for the actual improper deductions” lose exempt status if one such employee faces an improper deduction.”
Craig Coates v. Dassault Falcon Jet Corp, 961 F.3d 1039 (8th Cir. 2020).
· cites it 2× “Second, even if Falcon Jet made impermissible reductions, it did not lose any exemption unless “the facts demonstrate that the employer did not intend to pay employees on a salary basis.”
Kristen Silloway v. City & Cnty. of San Francisco, 117 F.4th 1070 (9th Cir. 2024).
· cites it 3× “Implicit in that promise, and made explicit in 29 C.F.R. § 541.603 (a), is the general rule that employers are prohibited from taking 12 SILLOWAY V.”
Mathews v. Bronger Masonry, Inc., 772 F. Supp. 2d 1004 (S.D. Ind. 2011).
· cites it 7× “” 29 C.F.R. § 541.603 (a). The factors to be considered when determining whether an employer had an “actual practice” of improper deductions includes “the number of improper deductions, particularly as compared to the number of employee infractions warranting discipline.”
Litz v. Saint Consulting Grp., Inc., 772 F.3d 1 (1st Cir. 2014).
“See 29 C.F.R. § 541.603 (a) & (b) (requiring “[a]n actual practice of making improper deductions” for an employer to lose the exemption); see also 69 Fed.”
— 29 C.F.R. § 541.603(a) — 2 cases
— 29 C.F.R. § 541.603(e) — 2 cases
Mathews v. Bronger Masonry, Inc., 772 F. Supp. 2d 1004 (S.D. Ind. 2011).
“” 29 C.F.R. § 541.603 (a). The factors to be considered when determining whether an employer had an “actual practice” of improper deductions includes “the number of improper deductions, particularly as compared to the number of employee infractions warranting discipline.”
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