Seeking Reimbursement

WORKPLACE LAW - Seeking Reimbursement

Question

One of my salaried employees damaged the company provided laptop computer. Can I charge him for the cost of repairs? I feel that the company should not have to pay for his carelessness.

Answer:

This is an issue that employers often face when an employee damages company property. The answer to your question depends, in part, on whether the employee is exempt from state and federal wage and hour laws, or is classified as non-exempt.

The federal Department of Labor recently looked at this problem and issued an opinion letter discussing whether or not an employer can deduct money from salaries of exempt employees to reimburse the employer for damage to or loss of company equipment. The letter was written in response to a question about whether an employer could impose a fine on its exempt employees who damage equipment they use in performing their job, such as cell phones and laptop computers. The employer wanted to either deduct the amount for the replacement or repair cost from the employee’s salary, or require the employee to pay the damages out-of-pocket.

Under federal law, one of the requirements for an employee to meet the “salary basis test” and qualify as an exempt employee is that he or she must be paid a predetermined amount that is not subject to reduction because of variations in the quality or quantity of the work performed. Additionally, subject to some exceptions, an exempt employee must receive the full salary for any week in which the employee performs any work. Deductions are allowed in the following circumstances:

when an exempt employee is absent for a full day for personal reasons other than sickness or disability;
for absences of one or more full days because of sickness or disability if they are in accordance with a bona fide plan, policy or practice of compensating for loss of salary due to such sickness or disability;
as an offset for jury fees, witness fees or military pay;
when a penalty is imposed in good faith for infractions of safety rules of major significance; and
for unpaid disciplinary suspensions of one or more full days if imposed in good faith.

In addition, the employer is only required to pay pro rata for the time actually worked during the first and last week of work. Furthermore, an employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave.

The Department of Labor found that none of these exceptions contemplates charging employees a fine for damage to or loss of company equipment, and therefore deductions made to reimburse the employer for lost or damaged equipment violate the salary basis rule, and will result in the loss of the exemption for those employees. This is consistent with previous department opinions holding that if an employer makes deductions from an otherwise exempt employee’s salary for cash register shortages or for unacceptably high charges for the unauthorized use of a restaurant’s business telephone, the employee will no longer be deemed exempt. The employer may then be liable for payment of overtime, and subject to other laws that apply to non-exempt employees.

The Department pointed out that the result is the same whether an employer makes periodic deductions from employee salaries, or requires employees to make out-of-pocket reimbursements from compensation already received. Either approach would result in employees not receiving their predetermined salaries when due on a guaranteed basis, and would “produce impermissible reductions in compensation because of the quality of the work performed under the terms of the employer’s policies,” in violation of the laws qualifying employees for exempt status.

The federal Fair Labor Standards Act allows deductions from non-exempt employees’ wages within strict limitations. An employer may not lawfully require an employee to pay for an expense of the employer’s business if doing so reduces the employee’s pay below any statutorily required minimum wage or overtime premium that is due. Employers are required to pay all statutorily required minimum wages and overtime premiums finally and unconditionally. “Tools of the trade” and other materials or equipment that are incidental to carrying on the employer’s business are considered business expenses of the employer, and the cost of the materials and equipment may not be transferred to the employees if doing so would reduce their wages below the statutory minimum wage or overtime premium pay entitlements.

Many employers have policies in place concerning reimbursement for damaged company equipment. Based on this recent Department of Labor opinion, employers should look at their policies to ensure that they do not apply to exempt employees, and to make sure that they comply with the laws governing non-exempt employees.
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