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Say an exempt employee works four hours and takes four hours off for personal reasons, and has one hour of available sick leave and three hours of available vacation – what is an employer required to pay?  The rules regarding proper deductions from an exempt employee’s vacation bank or sick leave bank for partial day absences can sometimes be confusing.  In an opinion letter, the Department of Labor has helpfully offered employers specific guidance.  (DSLE Opinion Letter No. 2009.11.23.)   
 
It is important to remember that it is impermissible to deduct from an exempt employee’s salary for partial day absences.  However, it is permissible to deduct from an exempt employee’s salary for full day absences under certain circumstances.  Further, the rules for deducting from an exempt employee’s salary are distinct from the rules for deductions from an employee’s sick leave or vacation banks.  The Department of Labor provided several examples that illustrate the interaction of these rules:

  • An employee takes eight hours off for personal reasons, but has only two hours of accrued vacation leave.  Assuming a normal eight hour work day, two hours can be paid through use of vacation leave and six hours can be unpaid
  • An employee takes eight hours off due to illness, has five hours of available sick leave, and two hours of vacation leave.  The employer may deduct five hours from the sick leave bank, and may deduct two hours from the vacation leave bank (if the employer has a policy that vacation leave will be used for illness if insufficient sick leave is available) but may not deduct one hour of pay.  The employee will receive eight hours of pay. 
  • An employee works two hours and takes six hours off for personal reasons, and has one hour of sick leave and six hours of accrued vacation.  The employer is permitted to deduct the six hours from the employee’s vacation bank.
  • An employee works three hours and takes five hours off for personal reasons, and has five hours of sick leave and zero hours of accrued vacation.  The employee is required to receive full payment, without deduction from the sick leave bank. 
  • An employee works one hour and takes seven hours off due to illness, and has two hours of sick leave and two hours of vacation leave.  The employer must pay the full salary, but is permitted to deduct two hours each from the employee’s sick leave and vacation leave banks. 
  • An employee works five hours and takes three hours off due to illness, has zero sick leave and four hours of accrued vacation.  The employee should be fully paid, but it is permissible for the employer to deduct three hours from the employee’s vacation bank (again assuming the employer’s policy so provides).

As is evident, what is required and what is permissible depends on whether the absence is for illness or for personal (non-illness) reasons, and depends upon the employee’s available leaves.  Further, the employer should have a policy that provides that vacation leave is to be used for absences due to illness when there is no available sick leave.

Finally, the Department of Labor concluded that deductions from leave banks may be made for absences of less than four hours.  Since Conley v. P.G.&E. (2005) 131 Cal.App.4th 260, it has been clear that it is permissible to deduct from an exempt employee’s vacation leave bank for partial day absences of at least four hours.  The Department of Labor clarified that there is no four hour limit and an employer can therefore deduct for partial day absences of less than four hours. 

The interaction of the rules can be complicated, and an employer that erroneously deducts  from an exempt employee’s salary runs the serious risk that the employee will not be considered exempt.  The Department of Labor has thankfully provided some guidance to employers. 

The answer to the question posed at the beginning is:  the employer is required to pay the employee his or her full salary, but may deduct three hours from the employee’s vacation leave bank.   

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