PTO in California: 7 permitted payroll deductions for exempt employees

How can a California employer administer their PTO policy and still stay in compliance with the requirements for exempt employees? Can the employer make deductions from pay for an exempt employee after all PTO time has been used?

PTO and permitted payroll deductions in California

"In implementing and running your PTO policy, you want to make sure that you don't run afoul of any other wage and hour laws—and particularly with respect to how you treat the salary-basis part of an exempt employee." Marc Jacuzzi explained in a recent CER webinar.

The main consideration here is to ensure that any payroll deductions are not in violation of the "salary basis test" required for exempt status. Generally, "salary basis" means that an exempt employee must regularly receive, each pay period and on a weekly or less frequent basis, a predetermined amount of compensation that cannot be reduced because of variations in the quality or quantity of work performed.

But for a few identified exceptions, the 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. However, exempt employees need not be paid for any workweek when they perform no work.

The regulations contain seven exceptions to this salary basis no pay-docking rule. Employers may make deductions from salary of exempt employees in the following situations:

1. An absence from work for one or more full days for personal reasons, other than sickness or disability
2. An absence from work for one or more full days due to sickness or disability if the deduction is made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences
3. To offset any amounts received as payment for jury fees, witness fees, or military pay
4. Penalties imposed in good faith for violating safety rules of major significance, such as "no smoking" rules in explosive plants, oil refineries and coal mines
5. Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules, such as rules prohibiting sexual harassment or workplace violence
6. Proportionate part of an employee's full salary may be paid for time actually worked in the first and last weeks of employment
7. Unpaid leave under the Family and Medical Leave Act

In summary, from the standpoint of administering a PTO policy, the employer can deduct from the PTO bank for absences for an exempt employee. But after the PTO bank is depleted, salary deductions are not allowed for reasons other than the exceptions above.

The above information is excerpted from the webinar "PTO in California: Practical Pointers on Administering Leave Donation Banks, Curbing Abuse, Reducing Absenteeism, and More." To register for a future webinar, visit CER webinars.

Marc L. Jacuzzi, Esq., is a shareholder in the law firm of Simpson, Garrity, Innes & Jacuzzi. He advises clients regarding all aspects of the employer/employee relationship including hiring and termination, wage and hour requirements, employee classification, civil rights and discrimination issues, employee investigations, commission plans, employment contracts, employee handbooks and policies, confidential information agreements, reductions in force, leaves of absence, employment audits, M&A employment issues, violence in the workplace, and international employment issues.