Aruba, Jamaica, Can I Dock that Paycheck?

by Mary CooperMary-Cooper

The cold, blustery days of winter have finally given way to the sunshine and warmth of summer we all daydreamed about just a few months ago. For many employees, this long-anticipated seasonal change brings with it a very important agenda item– VACATION!

Employers often spend time worrying about the non-exempt under-productive, under-performing employees in quest of maximum benefit for minimal effort. But when it comes to vacation or personal time away from work, employers should not overlook salaried employees exempt from overtime and minimum wage requirements. Of particular importance in this group, are the over-achieving employees that are unable to draw a line in the sand (literally) between work time and personal time while on vacation. Despite good intentions, these employees can create dicey wage and hour problems for employers.

Traditionally, employers are afraid that non-exempt employees will work “off-the-clock,” resulting in potential claims for unpaid wages, and possible overtime and minimum wage violations. But what if an exempt employee answers emails or phone calls while on unpaid vacation? This scenario can be problematic for employers under federal wage and hour law in limited circumstances. The best way to avoid improper deductions from exempt employees’ pay for vacation days is to develop a leave policy under which the employer offers employees a number of days to be used for personal absences and requiring exempt employees to use available paid vacation or PTO. Such a policy is permissible, because deducting from an exempt employee’s accrued leave account does not violate the salary basis test. Generally, exempt employees will use accrued paid leave for vacation days and employers will not need to worry about impermissible deductions thereby violating wage and hour laws. However, when an exempt employee has used all of his or her accrued paid leave, or where the employee has not been employed long enough to have accrued paid leave, salary deductions for unpaid vacation time can get tricky.

Under the FLSA, an exempt employee must be paid at a rate of not less than $455 per week on a salary basis (in addition to meeting certain duties tests). This means that the exempt employee must be paid a fixed salary each workweek. As a general rule, if the employee performs any work during the workweek, he or she must be paid the full salary amount regardless of the number of hours worked or the quantity or quality of the work performed. On the other hand, the employee need not be paid for any workweek during which he or she performs no work (e.g., when an employee without PTO is on vacation for the entire workweek).

Salary deductions from pay are allowed, and will not violate the salary basis requirement, when an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability and for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness (paid leave). Thus, employers can lawfully deduct vacation days from a salaried exempt employee’s pay if no work is performed for one or more full days. However, in the above situation, the employer may still be required to pay for vacation days where the exempt employee performs work (i.e., answering emails, phone calls, etc.), unless the employee uses accrued paid leave. Ultimately, the answer depends on exactly how much time the exempt employee spends answering emails and telephone calls while on unpaid vacation. If, for example, the employee spends 1 minute each day of vacation responding “okay” to an email, the time arguably is de minimus and will not cause the employer to lose the exemption for that workweek. If, however, the employee spends a significant amount of time answering emails or other work while on vacation, the employee should be paid for the days on which the work was performed in order to avoid improper deductions thereby violating the salary basis test.

The FLSA provides a safe harbor for employers taking impermissible deductions from exempt employee’s fixed salary. Specifically, if an employer (1) has a clearly communicated policy prohibiting improper deductions (in writing hopefully) and including a complaint mechanism, (2) reimburses employees for any improper deductions, and (3) makes a good faith commitment to comply in the future, the employer will not lose the exemption for any employees unless the employer willfully violates the policy by continuing the improper deductions after receiving employee complaints. Further, isolated or inadvertent improper deductions will not result in loss of the exemption if the employer reimburses the employee for the improper deductions.

In addition to developing a leave policy that allows exempt employees to accrue and use paid leave, employers should also have a written policy prohibiting improper deductions and clearly communicate the policy requirements to employees, underscoring that “no work means no work” when exempt employees are using unpaid vacation time. Requiring an exempt employee to respond to emails or be on a conference call while on unpaid vacation could obligate the employer to pay the employee’s salary for days when work is performed.

Please contact an attorney with the firm for further clarification regarding wage and hour issues.


Categories: Uncategorized