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January/February 2012
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March 10, 2009
Articles
"New" Obama DOL Clarifies Use of PTO, Vacation and
Mandatory Time Off for Exempt Employees
On January 14, 15 and 16, 2009 the Department of Labor issued three opinion letters which clarify for employers the permissible and impermissible use of PTO, vacation and mandatory unpaid time off when an employer does not have work for an employee.1
Background Information
An employee will be considered to be paid “on a salary basis” within the meaning of the FLSA Regulations if the employee receives:
Each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation which amount is not subject to a reduction because of variations in the quality or quantity of work. An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.
Based on these regulations, the DOL clarified how and when an employer may require or allow employees to take paid and unpaid time off from work.
- An employer may require an employee to use accrued vacation, PTO or other forms of paid time off for any absence, including one resulting from a plant shutdown, without affecting their exempt status provided the employee receives his or her guaranteed salary each week – at least $455.00.
- If an employee does not have any accrued paid time off (vacation or otherwise) available, an employer may not require the employee to take an unpaid day or more during the work week. Similarly, an employer cannot send an employee home or otherwise pay a reduced salary for that workweek in which the employer does not have sufficient work for the employee.
- If an employee does not have any accrued paid time off available, the employer may ask an employee to take a day off without pay so long as the employee chooses to voluntarily take the time. A voluntary day off without pay means that the employee can choose to work or take the time without pay. If the employee cannot choose to work, the day without pay will not be considered to be “voluntary.”
- In addressing the difference between an involuntary deduction from pay and a permissible fixed reduction in salary, the DOL clarified that an employer may make a fixed reduction in salary during the period of time when the company operates a shortened work week due to economic conditions. For example, an employer could prospectively tell an entire department that the employees will work a four day work week with an accompanying reduction in salary. This would be considered a bona fide reduction not designed to circumvent the salary basis payment. The salary exemption would remain in effect as long as the employee receives the minimum salary each week ($455.00) and met all the other requirements for the exemption.
- In order to use this method of salary reduction and to maintain the exemption, an employer cannot make an ad-hoc decision each week to reduce the workweek with an accompanying reduction in salary. Instead, to lawfully reduce both salary and work hours, the employer must make a strategic and more long-term decision to reduce the scheduled workweek to address a predicted period of declining business. In the absence of such a decision, the DOL could conclude that the weekly salary reduction is nothing more than an attempt to avoid the salary-basis test and send people home without pay and the employer could lose the exemption.
- It is permissible for an employer to require an exempt employee to stay home without pay for an entire workweek. This is because an exempt employee need not be paid for any workweek in which they perform no work.
For any questions or for assistance with the "New" Obama DOL Clarifies Use of PTO, Vacation and Mandatory Time Off for Exempt Employees in this article, please contact Penelope Phillips at (612) 373-8428 or by email, pphillips@felhaber.com.
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