It is a common practice of many employers, including hospitals and physician practices, to deduct the cost of damaged or lost equipment, such as cell phones, laptops and vehicles, from the salary of employees. However, in a recent Opinion Letter, the Department of Labor (DOL) ruled that such deductions jeopardize the minimum wage and overtime pay exemptions of white collar workers (executive, professional and administrative employees) under the Fair Labor Standards Act (FLSA).
To qualify for the white collar exemptions, among other things, an employee must be paid a predetermined amount at a rate of at least $455 per week on a salary or fee basis that is not subject to reduction because of any "variations in the quality or quantity of the work performed."
In its Opinion Letter, the DOL ruled that making deductions from the salary of exempt employees for damage to, or loss of, company equipment is impermissible because such deductions violate the FLSA's prohibition against reductions in compensation due to the quality of work performed.
The DOL also held that employers may not even require exempt employees to make an out-of-pocket reimbursement for lost or broken equipment, from compensation already received, without running afoul of the FLSA.
Accordingly, charging an exempt employee for his or her damaged or lost equipment may expose employers to liabilities, including owing overtime pay to that employee and to other employees in that employee's job classification.