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Charging Time Off Against Available PTO, Sick or Vacation Time for Exempt Employees

I am often asked: If an exempt employee leaves work early for a medical appointment or other appointment, can the employer charge those hours against available sick leave, PTO or vacation hours? The simple answer is, most likely, but the employer cannot reduce the employee's salary except in specific situations.

It should first be noted that if any of the time is taken off under the Family Medical Leave Act (FMLA) or the California Family Rights Act (CFRA), the employer can deduct the hours from the employee's pay without risking losing the exemption. This is true because FMLA and CFRA specifically provide that the time off is “unpaid."

If an otherwise exempt salaried employee absents himself or herself for a full day or more on personal business, such absence may be deducted on a pro rata basis from the salary owed. A deduction under these circumstances does not affect the salaried exempt worker’s exempt status.

The state Labor Commissioner has taken the position that “If an exempt employee performs any work during the work day, no deduction may be made from the salary of the employee as a result of what would otherwise be a ‘partial day absence.’"

However, in 2005 a California Appellate Court decided Conley v. PG&E(2005) 131 Cal.App.4th 260. One of the issues decided was whether an employer can deduct for partial day absences of four hours or more from an employee’s vacation pay bank, when the employee is salaried exempt. Under PG&E’s vacation pay policy, employees could take vacation in increments of 4 hours. The court held that under the facts of PG&E’s vacation pay policy, where the company only deducted for absences of 4 hours per day or more, there was nothing in California law which prohibits this practice. This enforcement policy is consistent with that of the U.S. Department of Labor. (See, Wage and Hour Division, U.S. Department of Labor, Opinion Letter dated July 21, 1997).

Based on Conley, the Labor Commissioner adopted the policy that “If a sick leave plan provides for a vested right to wages, as is the case with vacation and PTO plans, the holding in Conley is applicable and deductions from accrued sick leave may be made only for absences of at least 4 hours in duration. If a sick leave plan does not establish a vested right to wages, deductions from sick leave for increments of less than 4 hours continue to be permissible to the extent that such leave credits exist at the time of the partial day absence."

The Department of Labor developed fairly clear guidelines under the federal Fair Labor Standards Act describing when an employer could reduce an exempt employee's salary without losing the exempt status. Shortly thereafter the Division of Labor Standards Enforcement (Labor Commissioner) adopted similar policies for California employers. The following is a summary of the Labor Commissioner’s policies regarding making deductions from an exempt employee’s salary.

  1. Employees exempt from the overtime requirements of California law under the Professional, Administrative or Executive exemptions must be paid a salary. This means the employee must receive the same amount of pay regardless of the number of hours worked each week.
  2. If an otherwise exempt employee performs no work during a full workweek, the employer does not have to pay the employee any salary.
  3. If the employee does not get sick days, you cannot deduct anything from the salary if the employee takes a sick day.
  4. If an otherwise exempt salaried employee absents himself or herself for a full day or more on personal business, such absence may be deducted on a pro rata basis from the salary owed.
  5. If an exempt employee performs any work during the work day, no deduction may be made from the salary of the employee as a result of what would otherwise be a “partial day absence."
  6. If the employer has a PTO policy (as opposed to a sick leave policy), and the exempt employee exhausts the PTO, the employer can deduct the salary for partial day absences as long as the absence is at least four hours.
  7. No deduction may be made from the salary of an exempt employee for absences occasioned by sickness or accident unless the absence for sickness or accident exceeds the weekly period.
  8. Deductions may be made for absences in increments of full working day occasioned by sickness or disability (including industrial accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing full compensation for loss of salary occasioned by both sickness and disability and the employee has exhausted his or her leave under the policy. In other words, an employer cannot deduct for sick days unless it first gives the employee some sick days to exhaust and the employee in fact exhausts those sick days.
  9. No Deduction From The Employee’s Salary May Be Made For Absences Occasioned By The Employer Or By The Operating Requirements Of The Business if the absence is less than a week. (i.e., if the employer shuts down the office for two days). If the employee is ready, willing and able to work, deductions may not be made for the time when work is not available. If the office closure is a full week, the employer does not have to pay employees for that week.

Assuming the employer provides paid PTO, the employer can require exempt employees to charge time off against their accrued PTO. Once that PTO is exhausted, the employer can reduce the employee’s salary for partial day absences in 4-hour increments without risking losing the exemption provided the employer’s PTO policy allows employees to take PTO in 4-hour increments. If the time off is less than 4-hours, or if the employer’s policy only allows PTO to be taken in full day increments, the employer cannot reduce the employee’s salary. The employer may be able to deduct the time from future PTO that has not yet accrued, thereby causing the employee to go into a negative PTO balance. The employer may have a difficult time recouping the negative PTO.

Before deducting any money from an exempt employee's salary, speak with knowledgeable counsel.

Original article by Robert E. Nuddleman of Phillip J. Griego & Associates

Copyright © 2011 Phillip J. Griego & Associates

Your use of this article does not create an attorney-client relationship between you and Phillip J. Griego & Associates.The use of the Internet or this article for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this article and Phillip J. Griego & Associates cannot guarantee the confidentiality of anything posted on the Internet.

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