What employers can and can not do when workers lose, destroy company equipment: HR Hero Line

WORKERS' COMP PRODUCTS

What Employers Can - and Can't - Do When Workers Lose, Destroy Company Equipment

October 19, 2007

What do employers do if they have employees who happen to lose or destroy company property over and over again? Can employers recoup the costs by docking the employees' pay? How about requiring them to make out-of-pocket payments to cover replacement costs? Wage and hour law limits what employers can and can't do in this regard.

Learn more about deducting from exempt employees wages with the Wage and Hour Compliance Manual

Fair Labor Standards Act - FLSA
In 2006, the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD) issued an opinion letter regarding whether exempt employees could be fined for the repair or replacement costs of company property, such as cell phones and laptop computers, that is lost or damaged. The company making the inquiry was open to either a payroll deduction or an out-of-pocket reimbursement.

As you know, the Fair Labor Standards Act (FLSA) exempts bona fide executive, administrative, and professional employees from overtime requirements. To qualify for the exemption, among other things, a salary-basis requirement must be met.

The DOL opined that any salary deduction for lost or damaged company property violates the salary-basis requirement of the exemption, thus endangering the employee's exempt status. It doesn't matter whether a company implements a policy of making periodic deductions from employee salaries or requiring employees to make out-of-pocket reimbursements from compensation already received. Employers simply can't do that.

What about nonexempt employees? The DOL opined that employers may not require them to pay for an expense of their employer's business if doing so reduces their pay below any statutorily required minimum wage or overtime premium that's due. That's because a company must pay all statutorily required minimum wages and overtime premiums "free and clear."

In other words, deductions are permissible so long as they don't cause non-exempt employees' wages to fall below the minimum wage for the pay period and don't take away the overtime wages that were earned.

Audit your wage and hour and employee classification policies and practices with the Employment Practices Self-Audit Workbook

What about deductions for employee carelessness?
No doubt about it, employee carelessness can be very costly for employers. Some of the equipment businesses provide employees in today's high-tech world, such as laptop computers and smartphones, can be quite expensive.

Pay-docking policies, however, can create a lack of trust, anger, and resentment in the workplace. They also can breed secrecy. For example, if an employee thinks there would be a detrimental consequence for losing company property, he may be reluctant to report it. That could be extremely damaging to an employer if that missing piece of equipment contains confidential information.

On the other hand, why should an employer tolerate careless employees costing it big bucks? The DOL's opinion letter doesn't address whether an employee may be disciplined for losing or destroying company property. Thus, employers may find it appropriate to handle incidents of carelessness as they would any other performance issue. Training sessions may be a good idea as well.

Bottom line
Employers certainly don't want company dollars to be lost, but they need to carefully consider the way they handle damaged or lost property. Not only do businesses want to avoid discontent and secrecy, but they also don't want to violate the law and end up paying more in legal damages and fees than they would if they had simply assumed the loss and moved on.

Copyright 2007 M. Lee Smith Publishers LLC. WEST VIRGINIA EMPLOYMENT LAW LETTER should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only. Anyone needing specific legal advice should consult an attorney. The State Bar of West Virginia does not certify specialists in the law, and we do not claim certification in any listed area. For further information about the content of any article in this newsletter, please contact any of the editors.

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