[Code of Federal Regulations]
[Title 29, Volume 3]
[Revised as of July 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 29CFR541.603]

[Page 196-197]
 
                             TITLE 29--LABOR
 
         CHAPTER V--WAGE AND HOUR DIVISION, DEPARTMENT OF LABOR
 
PART 541_DEFINING AND DELIMITING THE EXEMPTIONS FOR EXECUTIVE, 
 
                      Subpart G_Salary Requirements
 
Sec. 541.603  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.

[[Page 197]]

    (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.