What is a “salary” exactly?
Unlike hourly workers, salaried employees typically receive a fixed amount of pay per week that is not tied directly to the number of hours worked or to their productivity. The “salary” is the amount that the worker is generally guaranteed each week.
This does not mean, however, that salaried employees are always entitled to their full salary, even during weeks in which they take multiple days off. The Fair Labor Standards Act (“FLSA”) and the Ohio Minimum Fair Wage Standards Act (“OMFWSA”) allow employers to deduct from a salaried employee’s pay under the following circumstances:
- For personal days off – but only if the employee is off the entire day. If the employee works at all that day the time may not be deducted;
- For sickness or disability – again, only for full days. Further, the employer must have a bona fide leave plan in place (like a Paid Time Off, or PTO) system in place to be able to deduct this time; and
- For time missed from work in connection with discipline (like a suspension) based on a written discipline policy or for major safety infractions.
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Employers who improperly deduct wages from salaried employees risk destroying that employee’s exemption from the minimum wage and overtime requirements of the FLSA and the OMFWSA.
What Is A “Bona Fide” Leave Plan?
When the law uses the term “bona fide,” all that means is “genuine” or “legitimate.” While there are no regulations defining what a “bona fide” is, the Department of Labor (“DOL”) has provided the following guidance in a 2005 Opinion Letter:
Wage and Hour has found that a plan that has defined sick leave benefits which have been communicated to eligible employees, and that operates as described in the plan, will in general qualify as bona fide. In addition, to be bona fide, the plan must be administered impartially, and its design should not reflect an effort to evade the requirement that exempt employees be paid on a salary basis. Whether a particular plan is bona fide would, however, be based upon the actual design of and practices applicable under the plan.
Is A Leave Plan That Ties Your PTO Balance To Productivity “Bona Fide?”
Because such a plan would seem to be impossible to “administer impartially” and would probably “reflect an effort to evade the requirement that exempt employees be paid on a salary basis,” most likely not. Salaried employees who never have PTO available to them to cover absences caused by sickness because the employer bases their PTO availability on productivity are not truly being paid a “guaranteed” wage.
Recently, in Higgins v. Bayada Home Health Care Inc., the Third Circuit Court of Appeals came very close to being faced with this question, but it did not have to address it head-on. In Higgins, the employees argued that her employer’s policy of tying available PTO to productivity violated the FLSA because “PTO qualifies as a salary…[and]…by deducting PTO, [the employer] made unlawful deductions from the employee’s salaries.” While there was no dispute that the employer tied how much PTO it credited employees based on productivity, there was no evidence that any employee had ever had deductions made from their salary as a result of having insufficient PTO. In other words, while the employer had failed to credit PTO, no one’s pay had ever suffered as a result.
This made the Court’s decision easy. By looking at how the FLSA defines a salary, the Court readily found that PTO does not qualify:
An employer does not violate those conditions by deducting from an employee’s PTO because, when an employer docks an employee’s PTO, but not her base pay, the predetermined amount that the employee receives at the end of a pay period does not change. In other words, “the employee [will continue to] regularly receive each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation[.]” Id. That an employee might at some point be able to convert her PTO into cash does not alter that fact. The regulation requires only that the employee receive a predetermined amount of money each pay period that is “part of the employee’s compensation[.]” Id. (emphasis added). So long as the employer does not dock that pre-determined part of the employee’s compensation, the employer has satisfied the salary basis test. (Emphasis added).
In other words, because only “base” compensation is guaranteed, or “pre-determined,” any other benefits the employer might provide do not form part of the salary and thus, can be docked without destroying the employee’s exemption status. As the Court Summarized:
So, whereas salary is a fixed amount of compensation that an employee regularly receives, PTO, though having a monetary value, is more appropriately defined as a fringe benefit, which has no effect on the employee’s salary or wages, and which may be irregularly paid out, such as when an employee separates from a company. The two concepts being distinct, the term “salary” as used in the FLSA is best understood as not including fringe benefits like PTO.
Just because an employer can deduct PTO, should they? As explained above, I think that the outcome here may very well have been different if the employer in this case had failed to pay salaried employees lacking sufficient PTO for sick days. Under such a scenario, the employees would have a strong argument that the PTO policy is not “bona fide” and that they were not exempt. However, in this case, the employer was smart and only held a lack of available PTO against the employee’s ability to take “personal days,” i.e, vacation. Thus, at this employer, employees with low productivity can essentially never get a paid day off unless it is because of illness. But is this a good policy to have if you want to retain and attract employees? Likely not.
What Should I Do If My Employer Is Docking My Salary Illegally?
Best Ohio Wage Theft Attorney Answer: As explained above, the regulations governing what an employer may, and may not dock a salary for are very complicated. If you have any doubts at all about whether the deductions to your pay are legal, you should call the right attorney to determine whether you are owed wages and if so, to fight on your behalf to get you the pay you deserve.
Importantly, wage claims have a “rolling” statute of limitations and every day you wait is a day lost on your claim. If you believe that the company you work for has failed to pay you all of your wages or has misclassified you, call the attorneys at Spitz, The Employee’s Law Firm today for a free and confidential initial consultation. (Read: What is the Spitz No Fee Guarantee?) Call our lawyers in Cleveland, Columbus, Detroit, Toledo, Cincinnati, and Raleigh to get help now. Spitz, The Employee’s Law Firm and its experienced attorneys are dedicated to protecting employees’ rights and fighting for their unpaid wages.
The materials available at the top of this overtime, wage and hour web page and on this employment law website are for informational purposes only and not for the purpose of providing legal advice. If you are still asking, “Am I entitled to overtime?”, “Can I be fired for demanding my overtime pay”, “Can the company that I work for make me pay them back part of my paycheck” or “What do I do if I am not being paid minimum wage”, then your best option is to contact an Ohio overtime attorney to obtain advice concerning questions about the FLSA or any particular employment law issue. Use and access to this employment law website or any of the links contained within the site do not create an attorney-client relationship. The legal opinions expressed at the top of this page or through this site are the opinions of the individual lawyer and may not reflect the opinions of The Spitz Law Firm, Brian Spitz, or any individual attorney.