Source: http://www.flsa.com/coverage.html

Every once in a while this happens: an employee who has used up all allotted paid time off (PTO) is absent and the mistake is only caught later.

Many firms dock the employee’s pay. But is it legal under FLSA?

Three keys

The answer is yes – so long as you meet certain requirements.

According to the Department of Labor, PTO banks, paid vacation and and paid sick days are fringe benefits (which aren’t covered by FLSA).

As a result, you’re allowed to make deductions for absent employees who have already used up their PTO.

Three conditions:

  • Your organization must have a “bona fide” PTO (or separate vacation and sick day) benefits plan
  • Deductions for a salaried employee’s unexcused absences come in full-day increments, and
  • Your state and/or local labor laws don’t prohibit deductions.

What’s meant by bona fide?

In order to be considered a bona fide benefits plan, your paid time off policy (including the potential for deductions resulting from accidental PTO overuse) must be communicated in writing to employees.

This requirement is partially met if you include a PTO section in your benefits handbook. The other part: administering PTO policies exactly as they’re described.

Important: Under FLSA, if you don’t have a bona fide PTO plan, it’s illegal to make deductions.

Why full-day increments?

Even if your PTO plan allows salaried employees to take partial days off, you should only make deductions on a full-day basis.

Reason: Under FLSA’s complex formula for determining if an employee is exempt or non-exempt from overtime, partial-day deductions can compromise the OT status of an exempt employee.

Under FLSA, the amount of salaried compensation doesn’t include fringe benefits.

Therefore, while you can measure benefits in partial-day increments, corresponding pay for exempts must be measured in full-day increments.

Note: Partial-day deductions won’t automatically make an OT-exempt employee non-exempt.

To be sure, visit the FLSA-required wage tests at http://www.flsa.com/coverage.html and additional information.