Important Disclaimer
October 2005
Partial-Day Absences Should Not Be Deducted From A Salaried Employee's Wages
Prepared By: Melissa C. Marsh
Under California and federal law, employees classified as exempt from overtime compensation must be paid on a salary basis, and their paychecks cannot be subject to deductions for absences of less than a full day. Pursuant to state and federal law, employers are required to pay an exempt salaried employee his or her predetermined salary each pay period even when the exempt employee works less hours than required or expected. Recently however, the federal courts have held that while employers may not deduct wages from an exempt employee's paycheck for partial-day absences, they may deduct time from an exempt employee's accrued Paid Time Off ("PTO") or accrued vacation time for such partial day absences without altering the employee's exempt status. Until mid005, no California court had addressed this issue and the California Division of Labor Standards Enforcement ("DLSE") had consistently taken the position that partial-day PTO and vacation deductions rendered an otherwise exempt employee non-exempt thus entitling such an employee overtime pay.
Deduction From Accrued Vacation / PTO is Okay.
On July 21, 2005 the law changed. In Conley, et. al. v. Pacific Gas & Electric, the court ruled that while a California employer cannot deduct wages from an exempt employee's paycheck for a partial day absence, the employer may deduct time for a partial day absence from the exempt employee's accrued but unused vacation time or PTO. The holding in Conley should be limited to partial-day absences in excess of at least four hours; California employers may require an exempt employee to use accrued PTO for partial-day absences in excess of four hours. California employers should NOT, however, deduct wages to cover a partial-day absence if the exempt salaried employee does not have sufficient accrued PTO to cover the absence.
Caution Is Advised.
Employers must only deduct from accrued vacation or accrued PTO. If an exempt employee misses 4 hours of work but does not have any accrued vacation or PTO, the employer may not dock the employee's wages for such a partial day absence. Employers should also be cautious about disciplinary measures. While an employer may require exempt employees to work a specified number of hours in excess of 40 hours per week and may require an exempt employee to make up work time lost due to a partial day absence, disciplining an exempt employee because s/he failed to work a certain required number of hours or failed to make up the time may jeopardize that employee's exempt status and entitle that employee to overtime pay.
Exempt From Overtime?
Pursuant to California law, an employee can only be considered "exempt" from overtime pay if the employee: (1) is compensated on a salary basis; (2) receives a salary of at least $2,340 per month ($28,080 per year); and (3) spends more than 50% of his or her time on "exempt duties" (discussed below). If the employer deducts wages from an exempt employee's paycheck for personal absences of less than a full day's work, the employ will no longer be considered "salaried." In other words, if a salaried exempt employee comes in to work from 8am to Noon and then takes the remainder of the day off, the employer must not dock the employee's paycheck for the 4 hours missed unless the employer also desires to pay that employee "overtime."
Exempt Duties Test.
Since 2001 there has been an explosion in wage and overtime litigation, including a multitude of class action lawsuits covering an entire class of employees such as "managers," "assistant managers" and "salespersons." Plaintiff's lawyers love these cases because the Fair Labor Standards Act ("FLSA"): (1) requires the employer prove the employee is exempt and (2) presumes the employee is entitled to double his or her actual damages (unpaid overtime pay for up to 4 years).
Determining whether an employee is exempt from overtime is a multi-part test that focuses not only on the simple amount the employee is paid and how the employee is paid, but also the complex facts surrounding the employee's actual job duties. Under California law, exempt employees: (1) supervise at least two full-time employees; (2) exercise discretion and independent judgment in the management of a recognized department/subdivision; (3) have the authority to hire or fire, or ability to make strong recommendations as to hiring, firing, advancement, promotion, or other change in status of at least 2 other full time employees; and (4) spend more than 50 percent of their time on the above-mentioned exempt work.
Safeguard For Mistakes.
Currently, if an employer improperly deducts from an exempt employee's salary (for example, for a partial day absence), the employee may be deemed nonexempt during the pay period in which the deduction occurred. However, new federal regulations provide that if an employer has a clearly communicated policy that: (i) prohibits improper pay deductions; (ii) provides a mechanism for employees to complain about a deduction; (iii) reimburses employees for improper deductions; and (iv) shows a good faith effort to avoid future improper deductions, the exemptions will not be jeopardized unless the employer willfully violates the policy. All employers should ensure that they have adopted such written policies and communicated them to their employees.
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