We had a recent question from a client about the intersection between a somewhat unusual paid-time-off policy and the treatment of salaried exempt employees under the Fair Labor Standards Act. Under the PTO plan, employees accrue time on a pro rata basis beginning January 1. Because they cannot carry PTO over from year-to-year, employees do not have enough accrued PTO to take time off at the beginning of the year. Most employers that use this type of policy allow employees to “borrow” against future PTO accruals, but this company does not allow that practice.

The question posed to us was if a salaried exempt employee took full day absences from work, and had inadequate PTO to cover the time off, could the employer deduct the absences from their salary? Under 29 C.F.R. §541.602(b)(2), employers can make such deductions but only where they have a “bona fide plan” for providing paid compensation for such absences. If an employee cannot accrue enough PTO to cover absences in the beginning of the year, is this a bona fide plan?

According to the U.S. Department of Labor in a 2018 opinion letter, employers can make deductions for full day absences even if the plan has not allowed the exempt employee to qualify to take such paid leave. The absence of available paid leave early in the year does not change this analysis. Most employers allow some form of PTO borrowing by employees to avoid this scenario. However, employers that stick to a strict accrual system can basically require that salaried exempt employees take unpaid leave until they have accrued enough PTO to cover the absences.