DOL Reconfirms Rules Applicable to Deductions Made to the Salaries and PTO Banks of Exempt Employees for Absences

Volume 4, Issue 1
March 1, 2005

On January 7, 2005, the U.S. Department of Labor ("DOL") issued an Opinion Letter reconfirming that an employer may deduct from an exempt employee's paid time off bank ("PTO") for absences of less than a day due to personal reasons, accident, or illness, without jeopardizing the employee's exempt status. The DOL also reiterated that an employer may reduce an exempt employee's salary for absences of one or more full days due to illness or injury when the employee's PTO bank has been exhausted.

Deductions From Salary Allowed For One or More Full Days of Absence Only

Deductions from salary may be made when the employee is absent from work for one or more full days for personal reasons, other than sickness or disability. If an exempt employee is absent for one and one-half days for personal reasons, the employer can deduct only for the one full day absence.

Deductions from salary may also be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents), if the deductions are made "in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability". Thus, if the employer's particular leave plan provides compensation for such absences, an employer may make deductions from an employee's salary for absences of one or more full days because of sickness or disability before the employee has qualified under the plan and after the PTO/sick leave has been exhausted.

The DOL also reaffirmed that a PTO plan may qualify as bona fide plan even though it is not exclusively used for sickness or disability related purposes.

Deductions From PTO Bank Allowed For Full and Partial Day Absences

The requirement that deductions be made only for one or more full days of absences applies only to deductions from an exempt employee's salary, not to deductions from the exempt employee's PTO bank.

In its Opinion Letter, the DOL explained that where an employer has a bona fide leave plan, it is permissible to reduce an exempt employee's PTO hours for partial as well as full-day absences. However, the affected employee must receive his or her guaranteed salary for the period in which the reduction was made. Payment of the employee's guaranteed salary must be made, even if an employee has no vacation, sick leave or other PTO hours remaining or the employee's account has a negative balance, where the employee's absence is for less than a full day.

Because loss of exempt status can result in significant financial liability, it is extremely important that reductions to an exempt employee's salary and PTO be made carefully and in strict compliance with applicable regulations.

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