Employers have on occasion asked whether they may “charge” an exempt, salaried employee with an absence for part of a workday missed. The issue is an important one because it may result in the loss of an employee’s “exempt” status. The answer generally turns on the distinction between whether the exempt employee will actually have his or her salary “docked” or merely have the time charged against an accrued vacation/sick/personal time entitlement “bank.”
The federal Fair Labor Standards Act (“FLSA”) establishes requirements regarding minimum wage, overtime compensation, record keeping, and the use of child labor. FLSA proscribes employment of an employee “for a workweek longer than forty hours unless such employee receives compensation . . . at a rate no less than one and one-half times [his or her] regular rate.” FLSAexempts from this provision, however, “any employee employed in a bona fide executive, administrative, or professional capacity.” Employers are entitled to use these so-called “white collar” exemptions if the employee meets the “duties” and “salary” tests set forth in the regulations implementing FLSA.
In general, an employee will be considered to be paid “on a salary basis” within the meaning of the regulations if he or she regularly receives for each pay period a predetermined amount constituting all or part of his or her compensation, which amount is not subject to a reduction because of variations in the quantity or quality of the work performed. 29 C.F.R. § 541.118(a). It is well-settled that a private employer is permitted under the regulations to reduce or “dock” the pay of an exempt employee if that employee is absent from work for a full day. 29 C.F.R. § 541.118(a)(2).
Partial Day Absence: Reducing Pay Versus Leave Time
What happens when a employee is absent for only part of a day such as for a medical appointment, to attend a funeral or for other personal reasons? Presently, if a private employer “docks” the salary or cash pay of a salaried exempt employee for such a partial day absence, the employer may well lose the right to treat the employee as exempt, creating the possibility that such an employee would become eligible to receive overtime. Such a partial day pay reduction is viewed as antithetical to the “salaried” status of the employee, and thus converts him or her into an “hourly” employee.
On the other hand, there is clear authority under federal law permitting an employer to track or make deductions from an employee’s accrued vacation, personal or sick time entitlements or “banks” to cover partial day absences. Opinion Letters issued by the Wage-Hour Division of the United States Department of Labor expressly provide that an exempt employee’s accrued vacation time and sick leave entitlement banks may indeed be reduced for partial day absences without affecting the exempt status of the employee. In addition, where the employee has no accrued time remaining in his or her leave time “bank,” deductions may be made or “borrowed” against the employee’s future benefit time accruals. Federal courts in both New York and California, among others, have adopted this view, ruling that while an exempt employee’s salary may not be docked for partial day absences, employees may be required to draw on their “banked” sick, vacation and personal time to cover partial day absences. While benefits such as personal leave, sick leave and/or compensation time may be viewed as part of a employee’s compensation package, they are not viewed as strictly part of an individual’s salary for purposes of the Fair Labor Standards Act. (See, e.g., Webster v. Public School Employees of Washington, 247 F.3d 910 (9th Cir. 2001) (permissible to dock sick and vacation time balances in 15 minutes increments); Hoffman v. Sbarro, Inc., 982 F. Supp. 249 (S.D.N.Y. 1997) (benefits must be distinguished from salary)).
While an exempt employee may not have his or her salary “docked” for less than a full day’s absence, it appears to be permissible to track and charge sick, vacation or other personal benefit time entitlements to cover such partial day absences.