DLSE Approves Deductions of Fewer Than Four Hours From Exempt Employee Leave Banks

Summary

The California Division of Labor Standards Enforcement (DLSE) recently issued an opinion letter that allows employers to make deductions in any increment from an exempt employee’s accrued leave bank.  While employers need to carefully follow all of the required procedural rules to make such deductions, this opinion letter is another substantial, employer-friendly change in position for the DLSE.  Previously, the DLSE only permitted deductions from an exempt employee’s accrued vacation bank in excess of four hours.

Discussion

In addition to passing a duties test, to qualify as exempt, employees must generally receive their full salary for all weeks in which they perform work.  An important exception to this rule allows employers to make certain deductions from an exempt employee’s accrued leave bank for partial day absences if the absences are for personal reasons or illness, so long as any deduction for illness is made in accordance with a bona fide plan or policy.  Since the 2005 decision in Conley v. Pacific Gas & Electric, the DLSE has expressly permitted employers to make deductions from an exempt employee’s accrued vacation bank for absences of four hours or more. 

Based on the new DLSE opinion letter, employers may make deductions from accrued leave banks for partial day absences of any length without jeopardizing an employee’s exempt status.  Any such deductions, however, must be made in accordance with an express policy that allows for the deduction.  Employers may also combine accrued vacation and sick leave for purposes of making leave bank deductions if their policy expressly requires combined use.  For example, if an exempt employee takes three hours of vacation, but only has two hours of accrued vacation time, the employer may deduct two hours from the employee’s vacation balance and one hour from his or her sick time balance.  If the employee’s accrued leave balance is exhausted, he or she must be paid the full salary for that day because partial day deductions from an exempt employee’s salary are not allowed.  

What This Means

Although DLSE opinions do not have the force of law, California employers now have support for making deductions in any increment from an exempt employee’s accrued leave bank.  Before doing so, however, employers must revise their vacation, sick leave or paid time off policies to expressly allow for partial day deductions in increments shorter than four hours.  Employers should also decide whether to require the use of accrued vacation time when sick pay is exhausted, and must make the appropriate changes to their policies if they wish to do so.  Keep in mind that employers must give advance notice to employees of any changes to accrued leave policies.

Fred Plevin, Lisa Frank and Brenda Kasper.  Paul, Plevin, Sullivan & Connaughton. 

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