When Can An Employer Require An Exempt Worker Take Unpaid Leave?

By Eric B. Meyer

Like most employers, you likely have a workforce comprised of both non-exempt and exempt employees.

Under the Fair Labor Standards Act, non-exempt employees who work more than 40 hours in a workweek must be paid OT. Employers don’t need to pay OT to exempt employees.

Let’s assume that, each year, you provide your workforce with a bank of paid time off (PTO). Let’s further assume that you implement a policy that mandates that any additional leave be taken in unpaid full-day increments, event if the employee only needs a few hours off.

Is that policy legal? Or does it violate the FLSA?

Why this policy is OK

According to this recent federal-court decision (Kulish v. Rite Aid Corp. and Eckerd Corp), that policy is OK for two reasons:

The voluntary absences for unpaid leave are not occasioned by the employer or operating requirements of the business. [The FLSA states (see here) that a full-day unpaid leave policy represents an improper deduction for an absence “occasioned by the employer or by the operating requirements of the business,” when the employee is otherwise “ready, willing and able to work.” But, an absence for unpaid leave under this policy is employee driven. There is nothing that the employer does to require any further missed time from work. Instead, employees have the choice to take unpaid leave when they lack accrued paid leave.]
U.S. Department of Labor regulations permit deductions from pay for full-day absences. [The Labor Department regulations specify (see here) that a deduction made for partial-day absences will bar certain FLSA-exemptions for salaried employees. In contrast, deductions for full-day absences are expressly permitted, if the time off is for personal reasons. Therefore, an employer can require that additional time off — following PTO exhaustion — be taken in full-day increments].

Why you should tread carefully

If you are going to implement a policy like this one, be careful.

Remember that you cannot dock pay if an employee takes a partial day off by arriving late or leaving early. That may destroy the exemption and could lead to OT issues.

Additionally, while the FLSA regulations permit deductions from pay for absences of one or more full days occasioned by sickness or disability (including work-related accidents), that deduction must be made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability.

No sweat, right? It’s no wonder that wage-and-hour lawsuits are so common these days.

This was originally published on Eric B. Meyer’s blog, The Employer Handbook.