Get A Handle On Sick/Vacation Salary Deductions

08/20/08

When exempt employees call in sick, can the employer make salary deductions for those who have not qualified for leave or have exhausted their leave allowances? Yes, assuming the employer has a bona fide sick/vacation leave plan as described by the Fair Labor Standards Act (FLSA). There are no hard-and-fast rules as to how many days or how short a waiting period are required for a plan to be bona fide. But you need to understand how the Wage and Hour Division (WHD) has ruled in the past. By making sure your leave plan is bona fide now, you will avoid conflicts with employees down the road.

Put your leave plan on solid legal ground
The FLSA provides a complete minimum wage and overtime exemption for any employee in an executive, administrative, professional, computer or similar job classification. These salaried individuals receive a predetermined amount that is not subject to reduction because of variations in the quality or quantity of the work performed. But a salary reduction because of sickness or disability is another matter, and its legality hinges on whether the employer’s leave plan is bona fide.

According to a recent Wage and Hour Division opinion letter,¹ a sick/vacation leave plan generally is considered bona fide if it meets the following criteria:

• The plan operates as described;
• It is clearly communicated to eligible employees;
• Administration of the plan is impartial;
• The plan’s design does not indicate an effort to evade the FLSA requirement that exempt employees must be paid on a salary basis;
• And a reasonable number of absences due to sickness ordinarily is allowed without loss in pay to exempt employees.

The Wage and Hour Division previously has approved leave plans that allow for at least five days of sick leave annually, assuming one year of service for each affected employee.

Consider this scenario
Suppose an employer provides each employee one week of vacation and one day of sick/personal leave (six days total) after one year of service; two weeks of vacation and one day of sick/personal leave (11 days total) after two years; and three weeks of vacation and one day of sick/personal leave (16 days total) after 10 years. Also assume that salaried employees may use leave in half-day increments when they are ill. They don’t have to use leave if they are out for only an hour or two because of a doctor’s appointment or running an errand. Exempt employees also are allowed to use vacation leave for sickness or illness when necessary. Given these facts and assuming the plan meets the other criteria to be bona fide, the plan is acceptable under WHD guidelines. Therefore, the employer is allowed to make salary deductions for exempt employees who call in sick and miss a full day of work, but haven’t qualified for leave or have used up their leave allowance.

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¹Source: Wage and Hour Division, U.S. Department of Labor, opinion letter FLSA2006-32, September 14, 2006.