Requiring Use of Accrued PTO for Exempt Employee Absences

Jim posted the following:

I work for a large non-profit in Southern California. At our Management Team Meeting a couple of days ago, the Executive Director informed us (exempt staff) that effective immediately, if we take off early for a medical appointment, we must charge those hours against our sick leave hours. We were also informed that if we come in to work for a partial day (for example working less than a full day to get work done before heading off for vacation), we must charge whatever hours we don’t work, against our Personal Time Off.

As exempt staff, part of our job is to attend evening and weekend events (in addition to hours in the office). Is this legal? Does this mean that we are no longer exempt, but hourly?

It should first be noted that if any of the time is taken off under the Family Medical Leave Act (FMLA) or the California Family Rights Act (CFRA), the employer can deduct the hours from your pay without risking losing the exemption. This is true because FMLA and CFRA specifically provide that the time off is “unpaid.”

If an otherwise exempt salaried employee absents himself or herself for a full day or more on personal business, such absence may be deducted on a pro rata basis from the salary owed. A deduction under these circumstances does not affect the salaried exempt worker’s exempt status.

The state Labor Commissioner has taken the position that “If an exempt employee performs any work during the work day, no deduction may be made from the salary of the employee as a result of what would otherwise be a ‘partial day absence.’”

However, in 2005 a California Appellate Court decided Conley v. PG&E (2005) 131 Cal.App.4th 260. One of the issues decided was whether an employer can deduct for partial day absences of four hours or more from an employee’s vacation pay bank, when the employee is salaried exempt. Under PG&E’s vacation pay policy, employees could take vacation in increments of 4 hours. The court held that under the facts of PG&E’s vacation pay policy, where the company only deducted for absences of 4 hours per day or more, there was nothing in California law which prohibits this practice. This enforcement policy is consistent with that of the U.S. Department of Labor. (See, Wage and Hour Division, U.S. Department of Labor, Opinion Letter dated July 21, 1997).

Based on Conley, the Labor Commissioner adopted the policy that “If a sick leave plan provides for a vested right to wages, as is the case with vacation and PTO plans, the holding in Conley is applicable and deductions from accrued sick leave may be made only for absences of at least 4 hours in duration. If a sick leave plan does not establish a vested right to wages, deductions from sick leave for increments of less than 4 hours continue to be permissible to the extent that such leave credits exist at the time of the partial day absence.”

Assuming the employer provides paid PTO, the employer can require exempt employees to charge time off against their accrued PTO. Once that PTO is exhausted, the employer can reduce the employee’s salary for partial day absences in 4-hour increments without risking losing the exemption provided the employer’s PTO policy allows employees to take PTO in 4-hour increments. If the time off is less than 4-hours, or if the employer’s policy only allows PTO to be taken in full day increments, the employer cannot reduce the employee’s salary. The employer may be able to deduct the time from future PTO that has not yet accrued, thereby causing the employee to go into a negative PTO balance. The employer may have a difficult time recouping the negative PTO.

Original article by Robert E. Nuddleman of Phillip J. Griego & Associates

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