I currently work as an Exempt/Salary employee for a company in
Kentucky that is in the Technology sector.  My job consists of
providing technical work (software, hardware, etc) to our clients. 
The company has issued a memo stating that they will be deducting
money from our paychecks if we turn in some "paperwork" late.  The
paperwork is "timesheets" that is used internally only and not used to
generate revenue (billing a client, etc).  I thought I read that an
excempt employee cannot have his/her salary deducted for penalty or
punishment.

Question: Can an Employee deduct money from an Excempt employee's
paycheck for penalty/punishment?

Hello,

You are referring to the "no-docking rule." It greatly restricts when
employers can dock salaried employees' pay.

The Association of Corporate Counsel discusses this issue. Salaried
employees can be docked for missing entire days or weeks of work or
for "Good faith penalties for infractions of safety rules of major
significance"

"Deductions from a salaried exempt worker's base salary for reasons
other than full day absences are so disfavored that any deduction will
be scrutinized. While deductions are permitted to penalize salaried
workers who violate major safety rules, the Department of Labor or a
court rarely will  recognize "misconduct" as satisfying this exception
to the "no docking" rule.
Examples of violations of safety rules that may satisfy this standard
are set forth in the Wage-Hour Administrator's regulations, i.e.,
smoking cigarettes in an explosives factory or oil refinery. Thus,
unless the infraction is of comparable magnitude (which probably will
result in termination of employment, rather then a monetary penalty),
docking should be avoided as a means of
punishing violation of a work or safety rule."

Source: ACC, "PROPERLY CLASSIFYING EMPLOYEES UNDER THE FAIR LABOR
STANDARDS ACT," http://www.acca.com/chapters/program/sanant/flsaclass.pdf

The Western Colorado Human Resource Association says:

"Employees are not paid "on a salary basis" if their guaranteed
minimum pay may be reduced based on either the "quality or quantity"
of work performed. This is sometimes called the "no docking" rule.
Employees who are paid "on a salary basis" are therefore not generally
subject to reductions in pay or suspensions without pay for (most)
disciplinary violations."

Source: WCHRA, "Wage & Hour Law Summary,"
http://66.102.11.104/search?q=cache:fGWoYShfXScJ:wchra.org/Hrtoolbox/Wage%26HourLawSummary.doc+no-docking+rule&hl=cs

Scott McDonald of the labor law firm Littler Mendelson says companies
can almost never dock salaried employees for disciplinary reasons.
They can, however, fire them, demote them or reduce their salary going
forward.

Source: Scott McDonald, "Workforce Q&A," Business Report, July 2002,
http://66.102.11.104/search?q=cache:GblCl63-NEYJ:www.txbiz.org/TBR/20020715.pdf+no-docking+rule&hl=cs

So it seems your employer may very well be violating the law. However,
you should of course consult a labor lawyer before taking legal
action.

I hope this answer meets your needs. If not, please request clarification.

Search strategy:

docking salaried employees
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no-docking rule
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Thanks for the great answer.  This is well worth the $10 in proportion
to the amount of money the company is saying they will withhold.