I understand that the final rule requires compliance on a weekly basis to ensure exempt employees are paid at least $913 per week. How is this impacted by exempt employees on unpaid leave or short-term disability with reduced earnings (i.e. 60% of base pay)? I would imagine that we wouldn’t be required to adjust their earnings to meet the threshold during their leave, but I don’t want to assume.
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Thank you for your inquiry regarding the effect of the new overtime rule on an employee who is on an unpaid or short-term disability leave.
The final rule does not provide information regarding whether an employer must adjust an employee’s earnings if the employee is on an unpaid or reduced pay leave. However, the effective date of the $913 per week salary requirement is December 1, 2016, so the safest option for an employer is to adjust the employee’s salary to bring it into compliance with the final rule.
It’s worth noting that, in general, the exempt status of an employee on unpaid or reduced pay disability leave will not be jeopardized as deductions from exempt employees’ pay are permitted in certain circumstances. According to the DOL:
An employer may make a deduction from an exempt employee’s salary for the employee’s full day absences due to disability (including work-related accidents) provided the deduction is made in accordance with a bona fide plan, policy or practice of providing wage replacement benefits for such absences. Deductions may also be made for the exempt employee’s full day absences due to disability before the employee has qualified for the plan, policy or practice or after the employee has exhausted the leave allowance under the plan. The employer is not required to pay any portion of the exempt employee’s salary for full-day absences for which the employee receives compensation under the plan, policy or practice.
For example, if an employer maintains a short-term disability insurance plan providing salary replacement for 12 weeks starting on the fourth day of absence, the employer may make deductions:
- for the three days of absence before the employee qualifies for benefits under the plan;
- for the twelve weeks in which the employee receives salary replacement benefits under the plan; and
- for absences after the employee has exhausted the 12 weeks of salary replacement benefits.
Similarly, an employer may make deductions from an exempt employee’s pay for absences of one or more full days if wage replacement benefits are provided under a state disability insurance law or under a state workers’ compensation law.
The DOL also issued an opinion letter describing an employer’s options for retaining an employee’s exempt status during a rehabilitation pay program during which employees work part-time and collect partial disability benefits.