Employee Handbook Series Part 1 of 3: Three Tips to Manage Legal Risk Through a Safe Harbor Policy

Many employers understand that only salaried employees are exempt from minimum wage and overtime requirements. There is, however, understandable confusion (not to mention operational difficulties) surrounding the permissible deductions from exempt employees’ pay. As one example among many, employers generally cannot deduct exempt employees’ pay for absences due to illness or disability, except where the deduction is taken under a bona fide benefits plan.

Improper deductions may result in costly losses of the “exempt” employee status. As one example, in 2019, an employer paid $16.5 million in back pay based on the loss of the exempt employee status. Watch the video and read more below…


Tip #1 – Develop a clear safe harbor policy that includes three main components.
Even if improper deductions are made, a clearly communicated policy that meets the DOL’s safe harbor requirements may result in substantial savings. The three main components for a legally defensible safe harbor policy are as follows:

Clearly specify that the employer prohibits unlawful salary deductions, including examples of improper deductions.
Incorporate an internal complaint procedure with multiple levels of reporting.
Provide for prompt payments to all employees who receive impermissible deductions.

Tip #2 – Consistently implement your safe harbor policy and, once an error is discovered, make a good faith commitment to comply in the future.

For full safe harbor protections, employers must consistently implement their safe harbor policies. According DOL guidance, employers will be allowed reasonable time to investigate and correct improper deductions. Once errors are discovered, employers must demonstrate a good faith commitment to avoid future errors.

Tip #3 – Publish a copy of the safe harbor policy in your employee handbook.

According to DOL regulations and guidelines, written policies that are distributed to all employees prior to deduction errors are the best evidence of clearly communicated safe harbor policies. To further demonstrate the employers’ commitments to good faith compliance, particularly where errors are discovered, employers may also post the notice in employee common areas and provide other enhanced reporting procedures.

BONUS TIP: Do not assume that “no news is good news.”

Just having a safe harbor policy is not enough. Even if you do not receive any employee complaints under the safe harbor policy, continuing to make improper deductions or willful violations of the safe harbor policy could result in substantial losses to the organization. Employers are best advised to continuously train management on the basic requirements of wage and hour law, the consequences for its violation, and the appropriate individuals for supervisors to contact with any questions (including reliable employment counsel!).

If you have any questions about any of the above, please contact Hall Benefits Law. We would love to hear from you, and the HBL team looks forward to serving as your risk management partner!

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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