Many firms dock a salaried employee who has used up his or her allotted paid time off (PTO) and is then absent from work. Is this policy legal under FLSA?
The answer is yes – so long as you meet certain requirements. According to the Department of Labor, PTO banks, paid vacation and paid sick days are fringe benefits, which aren’t covered by FLSA.
As a result, you’re allowed to make deductions for absent employees who have already used up their PTO. Three conditions:
- Your organization must have a “bona fide” PTO (or separate vacation and sick day) benefits plan.
- Deductions for a salaried employee’s unexcused absences come in full-day increments, and
- Your state and/or local labor laws don’t prohibit deductions.
What’s meant by bona fide?
In order to be considered a bona fide benefits plan, your paid time off policy (including the potential for deductions resulting from accidentally overused PTO) must be communicated in writing to employees.
This requirement is partially met by including a section on PTO in your benefits handbooks.The other part: administering PTO policies exactly as they’re described.
Important: Under FLSA, if you don’t have a bona fide PTO plan, it’s illegal to make deductions.
Even if your PTO plan allows salaried employees to take partial days off, you should only make deductions on a full-day basis. Reason: Under FLSA’s arcane formula for determining if an employee is exempt or non-exempt from overtime, partial-day deductions may compromise an exempt employee’s overtime status.
Under FLSA, the amount of salaried compensation includes only only base pay – not fringe benefits. Therefore, while you can measure benefits in partial-day increments, corresponding pay for exempts must be measured in full-day increments.
Note: Partial-day deductions won’t automatically make exempt employees non-exempt in every case. But to be sure, you’d have to first perform the wage tests required by the feds.