Q: Do I need to pay a salaried-exempt employee for time off if they already exhausted all of their PTO?
A: It is important for employers to be cautious when considering whether or not to take deductions from a salaried-exempt employee’s pay. One wrong move could result in a misclassification claim for not only the employee subject to the deduction – but all other employees in the same classification. What follows is a summary of some common questions regarding the permissible deductions from exempt employee pay under the federal Fair Labor Standards Act (FLSA).
What is the Salary Basis Requirement under the FLSA?
To qualify for exemption from minimum wage and overtime requirements of the FLSA, employees must meet a “duties” test (not discussed in this article) and generally must be paid at not less than $455 per week on a salary basis.* [Note that the salary basis requirements do not apply to all exempt employees, including teachers, outside sales employees, and employees practicing law or medicine.] Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Subject to exceptions listed below, an exempt employee must receive their full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.
When are pay deductions permissible for salaried-exempt employees?
Deductions from pay are permissible when an exempt employee:
- Performs no work in a workweek, or performs less than a full workweek in the employee’s initial or terminal week of employment.
- Takes unpaid leave under the Family and Medical Leave Act.
- Is absent from work for one or more full days for personal reasons other than sickness or disability.
- Is absent from work for one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness.
Deductions are also permissible:
- To offset amounts an employee receives as jury or witness fees, or for military pay.
- For penalties imposed in good faith for infractions of safety rules of major significance.
- For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.
What is a bona fide sick leave plan?
The U.S. Department of Labor, Wage & Hour Division (“W&H”) describes a bona fide plan as one that includes defined sick leave benefits which have been communicated to eligible employees, and that operates as described in the plan. Sick leave benefits can be provided as a separate bank of time, or integrated in a Paid Time Off (PTO) plan or policy. In addition, to be bona fide, the plan must permit a reasonable number of absences on account of sickness without loss of pay, be administered impartially, and its design should not reflect an effort to evade the requirement that exempt employees be paid on a salary basis.
While there is no minimum number of days or maximum eligibility requirements established in the rules or guidance, W&H has previously determined a plan was bona fide that provided five days of paid sick leave and required one year of service prior to eligibility for payment of sick benefits.
Presuming a bona fide plan exists, an employer may make a deduction from an exempt employee’s salary for the employee’s full-day absences due to sickness before the employee has qualified for the plan, or after the employee has exhausted the leave allowance under the plan.
Employers may not make deductions from pay for partial-day absences, but may charge time away from work to an employee’s available sick, vacation, or PTO benefits. Employers are also permitted to require exempt employees to “make up” time away from work, provided that an employee’s failure to make up the lost time does not result in a deduction from pay.
What about deductions for medical, disability, and workers’ compensation leave?
Similar to the pay deduction rules for bona fide sick leave programs, an employer may make a deduction from an exempt employee’s salary for the employee’s full-day absences due to disability (including work-related accidents) provided the deduction is made in accordance with a bona fide plan, policy or practice of providing wage replacement benefits for such absences.
Deductions may also be made for the exempt employee’s full-day absences due to disability before the employee has qualified for the disability plan or after the employee has exhausted the leave allowance under the plan. The employer is not required to pay any portion of the exempt employee’s salary for full-day absences for which the employee receives compensation under the plan, policy or practice.
For example, if an employer maintains a short-term disability insurance plan providing salary replacement for 12 weeks starting on the fourth day of absence, the employer may make deductions:
- for the three days of absence before the employee qualifies for benefits under the plan;
- for the 12 weeks in which the employee receives salary replacement benefits under the plan; and
- for absences after the employee has exhausted the 12 weeks of salary replacement benefits.
Similarly, an employer may make deductions from an exempt employee’s pay for absences of one or more full days if wage replacement benefits are provided under a state disability insurance law or under a state workers’ compensation law.
Do I have to pay my salaried exempt employees while they are serving jury duty?
If the employee works any time during the workweek then yes, you must pay the employee his/her regular salary. However, the regulations permit employers to deduct the amount of jury duty pay from the employee’s regular paycheck without violating the FLSA. Likewise, the employer may require the employee to return to work following jury duty if the employee is dismissed before the end of the workday. If the employee performs no work at all for an entire workweek, then the employer is not required to pay the employee for that week. However, even checking email and/or answering a work-related phone call is enough work to trigger the weekly salary requirement, so use caution before implementing the “no work in a workweek” exception to the salary basis requirement.
NOTICE: This summary is for informational purposes, and does not include application of potentially relevant state law. In circumstances where state law provides a greater benefit to employees (such as paid time for court appearances or paid sick leave), the state law will control. In any case, we have done our best to provide you with an accurate summary as of the publish date of this article. If you have any questions about this summary or other legal considerations when deducting from employee pay, please contact a member of the Rhoades McKee Employment Law Team.
* In May of 2016, the U.S. Department of Labor issued Final Regulations which increased the salary basis requirement from $455 per week to $913 per week ($47,476 annually for a full-year worker). The Final Rule changes were expected to be implemented beginning December 1, 2016, however, on November 22, 2016, a U.S. District Court Judge granted an Emergency Motion for Preliminary Injunction and thereby enjoined the Department of Labor from implementing and enforcing the Overtime Final Rule on December 1, 2016. The DOL appealed the District Court’s decision to the U.S. Fifth Circuit, which expects to hear arguments in early 2017. Employers are not required to comply with the Final Rule changes pending outcome of the Fifth Circuit litigation.
HR in Focus is a blog provided for informational purposes only and does not constitute legal advice. Employers are welcome to submit questions for consideration on the blog, however, submission of a question or the posting of any response to a question does not create an attorney-client relationship with Rhoades McKee. Employers with specific issues or questions about the law should seek the assistance of an attorney.