Employers often ask whether they must pay salaried employees when they are away from the workplace for personal reasons or due to illness or accident.  The answer depends on weather the employee is considered “exempt” or “non-exempt” under the Fair Labor Standards Act (FLSA).  Salaried employees who meet specified requirements of FLSA are classified as “exempt” employees. An employer is not required to pay exempt employees overtime wages when they work more than 40 hours per week.  To meet the FLSA definition of an exempt employee, the following three tests must be met: (1) the “salary basis” test, requiring that an employee must be paid a regular wage each period that is “not subject to reduction based on variations in the quality or the quantity of work performed,” except as permitted under law; (2) the “exempt duty” test, requiring that an employee must be classified as either an executive, an administrator, a learned or creative professional or a computer professional; and (3) the “salary level” test, requiring that an employee must earn at least $455.00 in any week.  Under the Illinois Minimum Wage Law, there are additional qualifying positions: vehicle salespersons, certain government employees and employees of not-for–profit educational or residential child care facilities.

       Under FLSA, there are seven circumstances under which employers may make deductions in the pay of exempt workers under the “no pay docking rule:”

• Absences of one full day or more for personal reasons (partial days may not be deducted);
• Absences of one full day or more for sickness or disability if the deductions are made pursuant to a workplace’s bona fide plan, policy or practice.  For example, if the policy allows 10 days off for sickness or disability and the employee takes an additional day off, then pay for this additional day may be deducted;
• Offsets for payments for jury fees, witness fees or military duty;
• Penalties imposed in good faith for violation of major safety rules;
• Disciplinary suspensions imposed in good faith of one or more full days for violations of workplace conduct rules;
• Unpaid Family and Medical Leave; and
• Proportionate salary deducted for days worked during an employee’s first and last weeks of employment.

       Deductions from an exempt employee’s pay for less than a full day’s absence due to either personal or health–related reasons are not permitted under FLSA regulations.  For example, if an employee takes off a day and a half for personal reasons, wage deductions may be made for only one day’s absence.

       However, Illinois courts have ruled that reducing Paid-Time-Off (“PTO”) (instead of weekly wages) for absences due to personal reasons, even when the employee misses less than a full day of work, is  permissible and will not jeopardize the exempt status of an employee.

       When an employer has a bona fide benefit plan in place, it is permissible to substitute or reduce accrued PTO for the time an exempt employee is absent from work due to illness or disability, even when less than a full day, without adversely affecting the employee’s exempt status, as long as the employee still receives as payment an amount equal to the employee’s guaranteed salary under the benefit plan.  For example, if an exempt employee takes a half-day off for illness, then this half-day off may be deducted from accrued PTO, although an employer may not deduct this partial day from the employee’s salary.

       Non-exempt, hourly employees only have to be compensated for time actually worked.  For example, if the workplace is closed by the employer and hourly employee cannot work as a result, the time during which the workplace is closed does not count as hours worked and hourly pay may be docked.  Alternatively, employees may be allowed to take leave to cover the hours off.  If an employer does not wish to treat exempt and hourly employees differently, an option is to adopt a policy that provides full pay to all employees in the event of particular circumstances, such as closure for inclement weather.

       If you have any questions regarding the benefit issues discussed in this article, please contact the Firm’s corporate department.