Many employers ask, “when is it permissible to deduct money from an exempt employee’s salary.” If an employer incorrectly deducts money from an employee’s salary, the employee may lose his/her exempt status and the employer runs the risk of having to pay the employee overtime.
The Department of Labor developed fairly clear guidelines under the federal Fair Labor Standards Act. 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.
- 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.
- If an otherwise exempt employee performs no work during a full workweek, the employer does not have to pay the employee any salary.
- If the employee does not get sick days, you cannot deduct anything from the salary if the employee takes a sick day.
- 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.
- 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.”
- 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.
- 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.
- 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.
- 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.
These policies are more strict than the Department of Labor’s polices under the FLSA. Because California employer must comply with whichever law is most strict, California employers should follow the Labor Commissioner’s policies.
Original article by Robert E. Nuddleman of Phillip J. Griego & Associates
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If a salary emplyee terminates employeement and the employee has sick time. does the employer have to pay all sick time to employee with all vacation owed? or only vacation time?
Thanks
Employers do not have to pay employees their accrued but unused sick time at the time of termination. Vacation pay is considered a wage, whereas an employee is only entitled to sick pay if the employee is actually sick. Therefore, the employee is not entitled to a sick pay “payout” upon termination. Paid Time Off that can be used for sickness or any other reason is treated the same as vacation pay.
I recently posted about a 2005 case that allows an employer to deduct accrued PTO for partial day absences. http://blog.griegolaw.com/2008/02/17/requiring-use-of-accrued-pto-for-exempt-employee-absences/
So, I don’t know if that qualifies as “recent,” but the law does allow an employer to require an employee to use his or her sick leave for absences due to illness — even if it is only a partial day absence.
Hope that answers your question.
Robert,
i am curious as it pertains to non-exempt employees; Does the employer have to pay out accrued Sick Pay to that employee upon termination in their final check? (I saw your response in regards to exempt employees above). Please cite any CA Labor Laws if you can. Thank you very much.
Regardless of whether an employee is exempt or not, the law does not require employers to pay out unused sick leave at the time of termination. Sick leave is different from vacation or paid time off because you are only entitled to use sick leave if you are sick (or one of the other qualifying events such as illness of a family member). Since you only “earn” a right to take sick leave if you are sick, and you have not met the “condition precedent” of being sick, you have not earned the leave.
I’m not aware of any California cases on the issue, but the Labor Commissioner has taken the position that if the leave is conditioned on some event (i.e., getting sick) then the leave is not earned until that event occurs.
However, the Labor Commissioner warns: “Confusion Of Vacation Pay With Other Leave Benefits. DLSE has been asked on numerous occasions to give an opinion regarding the difference between vacation wages and other leave benefits. The DLSE has always opined that leave time which is provided without condition is presumed to be vacation no matter what name is given to the leave by the employer. Such an enforcement policy insures that leave policies which are nothing more than vacation policies under a different name are not instituted as subterfuges to defeat the provisions of Labor Code § 227.3 and the conclusions of the California Supreme Court in Suastez. Thus, there must be an objective standard by which it can be established that the leave time is attributable to holidays, sick leave, bereavement leave or other specified leave. Tying the right to take the time to a specific event or chain of events such as allowing a vacation period for the Thanksgiving weekend would suffice to satisfy the test. (See discussion of the test in O.L. 1992.04.27, 1986.10.28, 1986.11.04, 1987.01.14-1).”
During the orientation period, employees don’t have sick time available, thus if an exempt employee gets sick for a day, do you have to pay them for that day? what is the law code for that?
John,
That’s an interesting question. I’m assuming that the hypothetical employee is entitled to sick leave, but just hasn’t accrued enough sick leave to cover the missed work. The employer runs the risk of violating rules 7 and 8 above if the employer fails to pay the employee the full salary. Of course, if the employee didn’t work any overtime that week there are ways the employer could minimize the risk. Remember, the only drawback to deducting from an exempt employee’s salary is that the employee will no longer be exempt. If the employee never works overtime then it is a non-issue.
The employer could also argue that since the employee did not have any accrued sick leave, the employee took the time off for “personal reasons,” and therefore the employer could deduct the missed work from the salary under rule 4 above.
To be safe, the employer may want to consider paying the full salary, but having the employee go into the negative on the sick leave accrual.