HR Management & Compliance

Exempt Employees: Labor Commissioner Changes Guidance on Vacation and Paid Time Off

The California labor commissioner has withdrawn an existing opinion letter regarding employer-mandated use of vacation and other paid time off (PTO) for exempt employees, as well as the use of vacation or PTO for partial-day absences. We’ll explain what the commissioner’s action means and how it will affect your workplace. 

Forced Time Off During Temporary Shutdowns

The original opinion was issued by the Division of Labor Standards Enforcement (DLSE)—which is the commissioner’s enforcement arm—under the previous governor’s administration. The opinion addressed whether you can require exempt workers to use up their accrued vacation or PTO to get paid for a week when your business has a temporary shutdown of a full workweek, such as during the Christmas holidays. The DLSE wrote that such forced use of vacation or PTO was permissible only if the employer had a policy issued at least nine months before the scheduled closure stating that exempt workers had to use vacation or PTO during that period.  Now, in a memo explaining the basis for withdrawing the opinion, the commissioner says there is no legal basis for the nine-month notice requirement. Rather, an employer must provide only “reasonable notice” before requiring use of vacation or PTO—as far in advance as possible but generally no less than one full fiscal quarter or 90 days, whichever is greater.

Partial Day Deductions OK

Under state and federal wage and hour rules, deductions from the salary of an exempt employee may be made when the employee is absent from work for one or more full days for personal reasons—but deductions for partial days off are not permitted. The DLSE’s opinion letter had taken this concept a step further to state that California law also prohibited partial-day deductions from accrued vacation or PTO of exempt employees. The reasoning? California treats accrued paid leave just like wages, so if partial-day docking isn’t permitted from wages, it also isn’t permitted from accrued paid time off. But now, the commissioner says this reasoning is flawed because taking fully paid vacation or other time off without any reduction in salary isn’t a reduction of wages, whether the time off is for a partial day or full day. What’s more, the prohibition was at odds with various statutes that permit partial-day use of paid leave for all employees, such as the California Family Rights Act, the Family School Partnership Act, and Labor Code Section 233, which permits family sick leave. Also, according to the commissioner, the prior restriction on such partial day reductions was contrary to federal salary basis regulations, and it is now the DLSE’s intent to follow those federal rules where consistent with California law.

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Impact on Your Workplace

Attorney Julie Totten, a partner in the Sacramento office of Orrick, Herrington & Sutcliffe, points out that the labor commissioner’s memos and enforcement policies aren’t binding law, although employers look to them for guidance in their compliance efforts. Because of the commissioner’s policy change, employers don’t have to provide nine months’ prior notice before requiring employees to use up their accrued vacation or paid time off. The new guideline is that reasonable notice should be provided as far in advance as possible, as long as it’s no less than one full fiscal quarter or 90 days, whichever is greater. Note that the new policy doesn’t distinguish between exempt and nonexempt employees. Thus, Totten advises, employers may want to treat it as guidance for both exempt and nonexempt employees when mandating the use of vacation or paid time off. And, keep in mind that you can allow exempt and nonexempt em- ployees to utilize vacation or paid time off without regard to the reasonable notice standard when circumstances warrant, such as during a companywide shutdown. In addition, Totten says it now appears that employers may deduct from exempt employees’ accrued vacation and PTO leave banks when these employees are absent for part of a day. Be sure to update your policies to reflect this change.


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