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Exempt Employees and Partial Day Absences

3 September 2010

You know that you cannot dock your exempt employees’ pay for absences of less than a day.  But can you require them to use paid leave for this time off?  Just as importantly, should you?

One issue that comes up continually for employers is how to deal with exempt employees who take time off in less than full day increments.  The Fair Labor Standards Act (FLSA) regulations make it clear that employers generally cannot dock their exempt employees pay for absences of less than a day without jeopardizing the exemption.

But, a question arises when employers have policies requiring exempt employees to use hours of paid vacation or sick time for partial day absences.  These policies provide a way for employers to attempt to avoid docking pay since the exempt employee’s salary remains the same.

This approach can raise questions, though, about whether the employee is really being paid on a “salary basis,” as required by the FLSA’s regulations.  Some courts and the DOL disagree about how the requirement affects the employee’s exempt status.  And, from an employee relations’ perspective, the requirement can create ill will from exempt employees who consistently work more than 40 hours a week without additional compensation.

* DOL Allows Use of Paid Time Off for Partial Days *

The DOL, in its opinion letters, traditionally has permitted vacation or sick leave offsets as long as the exempt employee does not experience a reduction in compensation.  So, according to the DOL, once an employee is out of paid-time off, you may not make any partial day deductions.  In the comments to the 2004 regulations, the agency specifically restates its prior position outlined in the opinion letters.

Several courts have adopted the DOL’s position.  For example, in Webster v. Pub. Sch. Emples. of Wash., Inc., 247 F.3d 910 (9th Cir. 2001), the Ninth Circuit determined that an employer can make deductions for partial day absences from an exempt employee’s leave bank.  According to the court, leave time is not considered salary, even when the leave can be paid out as cash at termination.   Similarly, in Schaefer v. Ind. Mich. Power Co., 358 F.3d 394 (6th Cir. 2004), the court acknowledged that exempt status is affected only by monetary deductions for work absences and not by non-monetary deductions from fringe benefits such as personal or sick time.

* Some Courts, States Disagree *

However, a few courts have disagreed.  They have determined that this practice, even without an actual loss of pay, treats the exempt employee like an hourly, nonexempt employee and, therefore, triggers loss of the exempt status.

For example, in Klein v. Rush-Presbyterian-St. Luke’s Med. Ctr., 990 F.2d 279 (7th Cir. 1993), the Seventh Circuit determined that a private employer improperly categorized employees as “professional.”  The employer had established a compensatory time “bank” based on overtime hours from which employees had to draw when working less than eight hours per day.  The court ruled against the employer even though the employees never were actually docked if their banks had a negative balance.

In addition, some state laws may impose different requirements for docking leave banks.  For example, Washington employers may make deductions from leave banks in partial day increments (but for at least one hour) only on the express or implied request of the exempt employee for time off from work.

As a result of this disagreement between the courts and the DOL, and since state laws may vary, employers still will be caught in the middle on this issue.  Accordingly, if you are a private employer and require exempt employees to use paid leave for absences of less than a day, you should consult legal counsel.

(Note that special rules apply for exempt public employees and allow them to be considered exempt even if their pay is reduced for partial day absences as the result of a pay system that meets certain requirements.  These rules are discussed in the FLSA regulations at 29 C.F.R. §541.710.)

* Consider Employee Reactions, Workloads Before Setting Policy *

As a practical matter, though, even if you are in a jurisdiction that allows use of paid leave for partial day absences, you may find that exempt employees resent being required to do so, particularly if they regularly work more than 40 hours per week.  In this situation, they are not entitled to additional pay when they put in long hours, but are required to use vacation or sick leave if they need a few hours off.

If your concern is that your exempt employees may abuse their status by leaving work early or coming in late, address those issues as a separate matter.  For example, discipline exempt employees who do not complete their work or who are not available when needed.  In other words, do not penalize all your exempt employees just because of the possible abuses of a few.

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