DOL issues opinion letter on overtime, sick leave plan

By Allen Smith Oct 26, 2006

An employer with a sick/vacation leave plan with a one-year qualifying period was bona fide, the U.S. Department of Labor (DOL) determined in a recently issued opinion letter.

As a result, the employer may make deductions from the pay of exempt employees for absences of one or more full days because of sickness before the employees qualify under the plan, it determined. Deductions after exempt employees have exhausted their leave under the plan also would not jeopardize their status, the opinion letter stated.

Under the leave plan of the employer seeking the opinion from the DOL, employees are eligible for 40 hours off with pay one year after the start date. After two years, the employee becomes eligible for 80 hours off with pay. And after 10 years, he or she will receive 120 hours off with pay.

The employer requires that vacation be taken in full workday increments, not an hour at a time, except it permits leave in half-day increments for an employee who is ill or who has a doctor’s appointment. Some departments may work 10-hour days, meaning that those employees would be entitled to four days off after one year. In addition, one sick or personal day is paid per year. Sales people are required under the employer’s plan to take vacation one week at a time under the employer’s policy.

A salaried worker’s leave is not reduced for arriving one to two hours late because of illness or a doctor’s appointment under the policy. Employees may not accrue vacation and sick leave under the plan. The policy requires earned leave each year to be used by the worker’s anniversary date.

The employer asked the DOL whether it could make salary deductions for employees who have not qualified for leave or exhausted their leave allowance.

Bona fide plan

Yes, the DOL answered in the opinion letter (FLSA 2006-32, dated 9/14/06).

The salary basis requirement for white-collar exemptions ordinarily is not met if an employer makes deductions from the employee’s predetermined compensation except in limited circumstances, the DOL noted. One of those exceptions is when an employer has a bona fide benefits plan.

When there is a bona fide plan, an employer may deduct from pay for full-day absences because of sickness or disability. In addition, “deductions for such full-day absences also may be made before the employee has qualified under the plan, policy or practice, and after the employee has exhausted the leave allowance,” the regulations state.

The DOL cautioned though that if an employee’s absence is for less than a full day, payment of the salary must be made, even if a worker has no accrued benefits in the leave plan and the account has a negative balance. The DOL added that the plan is bona fide only if it:

    • Is communicated to eligible employees.

    • Operates as described in the plan.

    • Is administered impartially.

There is no bright-line test for how short a waiting period is required for a plan to be bona fide, the DOL stated. But the department observed that in a 1982 opinion letter it had concluded that a leave plan requiring one year of service prior to payment of sick pay benefits was bona fide.

White-collar exemptions met

In three separate opinion letters released Sept. 27, the DOL determined that several employees had satisfied different white-collar exemptions, finding that:

    • Mortgage loan officers who work with the employer’s customers to assist them in identifying and securing loans were exempt administrative employees (FLSA 2006-31, dated 9/8/06). The officers have a primary duty other than sales and exercise discretion and independent judgment on significant matters, the DOL stated. Using software programs to assess risk and narrow the scope of available products for customers did not show a lack of independent judgment.

    • Loss prevention managers for a retail business with more than 200 department stores qualified for the administration exemption (FLSA 2006-30, dated 9/8/06). The managers’ main duties, including allocating store loss prevention resources to reduce inventory shortage, conducting audits, and reviewing cash discrepancies, relate directly “to the functional areas of accounting, auditing and quality control” cited in the FMLA rule on the exemption.

    • Gasoline service station managers who print the daily sales report to check inventory status and audit cash receipts (including delivering cash receipts to the bank) and train new managers are exempt executive managers (FLSA 2006-29, dated 9/8/06). The exemption was not lost just because the station managers occasionally—approximately once a year—worked the drive as attendants.

The DOL cautioned in its opinion letter on mortgage loan officers that “an employee’s exempt status is not determined based on job title or job classification; rather, it is determined by analyzing each particular employee’s actual job duties and compensation under the applicable regulations.”

Allen Smith, J.D., is SHRM’s manager of workplace law content.

Related articles:
Step by Step
, HR Magazine, February 2005.

Overtime Exemptions for White-Collar Employees: New Regulations Clarify Status, SHRM Legal Report, May-June 2004.

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