A recent court ruling may contain lessons for employers that would like to use workers’ PTO to cover hours not worked, writes Linda Bond Edwards, in this article published by HR Dive on August 15, 2023.

A federal appeals court recently held that employers don’t run afoul of the Fair Labor Standards Act if they involuntarily reduce workers’ PTO balances.

The case addressed deductions for drops in productivity, but it may contain lessons for situations in which an employer would like to use workers’ PTO to cover other time — to ensure an employee’s FLSA exemption remains intact, for example. 

Who qualifies for exemption?

The FLSA, at 85 years old, is one of the oldest employment laws in existence and requires employers, principally, to pay minimum wage and overtime to non-exempt employees that work more than forty hours in a workweek.

According to the U.S. Department of Labor, to qualify for exemption, employees generally must be paid at least $684 per week on a salary basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Subject to certain exceptions, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.

If the employer makes deductions from an employee’s predetermined salary, i.e., because of the operating requirements of the business, that employee is not paid on a “salary basis.” If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

A recent court decision from the 3rd U.S. Circuit Court of Appeals, Higgins v. Bayada Home Health Care Inc., provided favorable guidance to employers in FLSA compliance efforts. The court approved of an employer’s practice of reducing workers’ paid leave when they failed to meet productivity standards, and providing additional pay when they exceeded standards. The employer never paid an employee less than their weekly salary. The FLSA did not prohibit this practice because PTO is not “salary” as defined by the law, the court said.

Can workers similarly be required to use PTO?

Absent contractual or statutory provisions, employers grant paid leave to employees as a matter of policy and not as a matter of law. Because of this, most employers provide guidelines for when and how the paid leave can be used. Many employers give employees choices about when the leave can be used, but often specify terms of use, stipulating that accrued time can’t be carried over from year to year, advance notice and approval must be obtained before taking leave, leave can only be taken in blocks of four hours or more, etc.

Requiring workers to take paid leave at certain times is really no different. Employers may find themselves receiving pushback from employees if the employer has failed to fully communicate the policy or practice of using paid leave at times when the employee did not choose to use accrued time. For example, employees may decide to save PTO for a special vacation or for taking paid leave for medical or family reasons and may be disappointed to learn that the employer’s actions have reduced the balance. Employees can become protective of “their” paid leave when the employer’s policy reduces the amount of time available to the employee. 

Because the FLSA prohibits employers from making deductions from an exempt employee’s salary, employees may try to argue that the employer’s unilateral use of paid leave to make adjustments to salary amounts to a deduction from salary; however, the 3rd Circuit soundly rejected that argument. The court was clear that paid leave is a benefit and that the FLSA deduction regulations do not address reductions or changes in benefits.  

Employers considering using paid leave to ensure compliance with the salary provisions of the FLSA should remember the following:

1. The FLSA does not prohibit employers from using paid leave to ensure that an employee receives a salary each week.
2. Paid leave is a benefit and is different from an employee’s salary.
3. Employers may not make deductions from an exempt employee’s salary except for specified reasons.
4. If an employer decides to make deductions from an employee’s leave balance, the process should be communicated and explained to employees.

This article originally published on HR Dive on August 15, 2023 and is republished here with permission from the publication.