What to do when
workers break equipment

October 19, 2007

Excerpted from West Virginia Employment Law Letter and written by attorneys at the law firm of Steptoe & Johnson PLLC

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

FLSA
In 2006, the U.S. Department of Labor's (DOL) Wage and Hour Division 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 you implement a policy of making periodic deductions from employee salaries or requiring employees to make out-of-pocket reimbursements from compensation already received. You simply can't do that.

What about nonexempt employees? The DOL opined that you may not require them to pay for an expense of your business if doing so reduces their pay below any statutorily required minimum wage or overtime premium that's due. That's because you 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 nonexempt employees' wages to fall below the minimum wage for the pay period and don't take away the overtime wages that were earned.

What about deductions for employee carelessness?

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

Pay-docking policies, however, can create a lack of trust, anger, and resentment in your 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 you if that missing piece of equipment contains confidential information.

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

Bottom line

You certainly don't want company dollars to be lost, but you need to carefully consider the way you handle damaged or lost property. Not only do you want to avoid discontent and secrecy, but you also don't want to violate the law and end up paying more in legal damages and fees than you would if you 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.

Additional resources on HRhero.com

designates additional valuable resources available exclusively to Employment Law Letter subscribers.

HR Tools for FLSA

• HR Executive Special Report - Overtime Ins and Outs: How to Comply with the FLSA
  (available for purchase by nonsubscribers)
• HR Executive Special Report - Overtime Revisited: The DOL's Final Regulations
  (available for purchase)
  
• Sample Policy - Wage and Payroll Administration
• Sample Policy - Employee Classification
• Sample Policy - Overtime
• Sample Policy - Compensatory Compensation of Exempt Employees
• Sample Policy - Time Reporting

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