A recent question from a client on pay requirements for salaried employees who have exhausted their sick and vacation pay indicates that a refresher on compliance with the salary basis rule under the federal Fair Labor Standards Act might be in order. The applicable federal regulation is found at 29 C.F.R. 541.602.
An exempt employee who otherwise meets one of the tests for exemption from overtime and minimum wage requirements must be paid on a “salary basis.” This means:
- First, that the employee must be paid a salary, which is a predetermined amount that is not subject to variations in the quality or quantity of the work performed; and
- Next, that the employee must receive the full salary amount for any week in which any work is performed, regardless of the number of days or hours worked. The full salary must also be paid if the employee is ready, willing and able to work, even if the employer has no available work to be performed.
A simple example is that an employee whose predetermined salary is $52,000 annually must be paid the gross amount of $1,000 for each week in the year. Subject to the limited exceptions described below, a salary payment can only be skipped for an entire week in which the employee performs no work at all.
But the wage-hour regulations recognize that employment throughout an entire year is rarely so simple, and provide for deductions from weekly salary payments in certain circumstances, as follows:
- Personal time. An employee who is absent for personal reasons, other than sickness or disability, may be docked for the absence of an entire day. For example, the employee whose salary is $1,000 per week and who is given a full day off to attend a children’s birthday party may be paid the gross amount of $800 for that week.
Employers are not required by law to provide paid vacation, although paid vacation time is almost universal for full-time employees. A vacation day would be a form of personal time, so an employee taking a vacation day after exhausting the allotted paid vacation could be docked for the day.
- Sick time. The regulations seem to acknowledge that absences because of sickness or disability are not really from personal choice, and so prohibit docking pay for absences of less than a week unless the employer has a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by sickness or disability. If the employer has such a sick pay policy, an absent employee may be docked for a full day of absence after the allotted paid sick time is exhausted. However, an employee who comes to work for even a short time and then goes home sick on that day but otherwise works for the rest of the week must be paid full salary for the week.
The wage-hour regulations do not mandate a specific amount of paid sick leave; even two or three paid days annually can constitute a bona fide sick pay policy. Keep in mind that Connecticut has a Paid Sick Leave Law which requires a minimum amount of paid sick time for employees classified as service workers, Conn. Gen. Stat. 31-57r to 31-57w.
- Discipline. Both state and federal wage-hour regulations allow docking of pay of exempt employees for disciplinary reasons, but have somewhat different approaches.Federal regulations permit deductions for unpaid disciplinary suspensions from work of one or more full days. However, the regulations impose some requirements: the discipline must be in good faith for an infraction of workplace conduct rules, and must be in accordance with a written policy applicable to all employees. Deductions may also be made in good faith as a penalty for an infraction of a safety rule of major significance, such as rules for the prevention of serious danger in the workplace or to other employees. This regulation seems to authorize docking of pay as a fine rather than a suspension.However, the state wage-hour regulations allow only unpaid disciplinary suspensions for violations for safety rules of major significance. Connecticut employers will be limited to this disciplinary exception to the salary basis rule.
- Initial and termination weeks. Employees may be paid a proportionate part of their salary for the time actually worked in the first and last weeks of employment. These deductions are not required to be taken in full-day increments. For example, the employee whose salary was $1,000 per week and who quits at mid-day on Wednesday need only be paid $500 for the terminal week.
- FMLA. Similar to the rule for initial and terminal weeks, an employee whose absence is unpaid leave (including intermittent leave) under the Family and Medical Leave Act need only be paid the proportionate part of his full salary for time actually worked. For example, the $1,000-per-week employee who works five half-days in a week under FMLA reduced leave may be paid only $500 for that week.
In sum, under the FLSA a salaried employee does not receive pay for unlimited absences, but weekly pay may only be docked in compliance with the requirements of the wage-hour regulations.