Human Resource Blog

Paid Time Off - Kansas

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Are exempt employees required to use hourly increments for PTO, and if an exempt employee works four hours of an 8 hour day, isn’t a full day of pay issued?

This is actually two entirely different questions: 1) Can an employer require a salaried-exempt employee to use PTO for a partial day’s absence? and 2) Must the employee be paid his or her usual salary for the pay period, when missing a partial day of work? .

The answer to the first question is, employers establish PTO policies and they can set whatever standards they want to.

Must the employee be paid his or her usual salary for the pay period, when missing a partial day of work? Yes, when a salaried-exempt employee works a partial day, he or she should receive their usual salary. Salaried employees can have their pay docked  if they miss an entire day of work, but not a partial day.

If the employee’s salary is prorated or reduced based on the number of hours the employee works, then the Wage and Hour Division of the U.S. Department of Labor generally views this as an indication that the employee is not genuinely salaried-exempt. Usually, the WHD concludes that the employer is simply trying to evade the overtime requirement of the FLSA and that the employee should genuinely be classified as salaried non-exempt.

This is an important distinction. Under the federal Fair Labor Standards Act or FLSA, most employees are entitled to overtime when working more than 40 hours per week. Overtime must be paid at a rate 1.5 times the employee’s usual hourly rate.

Some, but not all, salaried employees are exempt from overtime requirements. These exemptions include those for professionals, executives and managers, administrative employees, and outside sales people. (A number of articles that have been posted on this site detail those exemptions.)

The FLSA specifies that in order to be salaried-exempt, the worker must be paid his or her entire salary for the day, even if they work only one hour.

An employee who is paid by the hour is never exempt from overtime. So when the employer reduces the employee’s wages because the employee worked less than 8 hours in a day, the employer effectively changes makes that employee eligible for overtime. This includes overtime that the employee has worked in the past.

The critical factor here is the amount of the employee’s paycheck. Suppose that Joaquin is a salaried-exempt employee who normally earns $500 per week. One week, Joaquin works only 4.5 days. If Joaquin is paid only $400 or $450 for that week, the employer has effectively admitted that Joaquin is actually an hourly employee. Joaquin is now probably eligible for time-and-a-half for all the overtime that he has worked in the past 2 years.

However, as long as Joaquin’s check is for $500, it doesn’t matter if that is straight salary, or a combination of salary and PTO. It’s the amount of the payment – not the accounting behind it – that is an issue under FLSA.

There is an exception here. The federal FMLA, ADA and some similar state laws permit an employer to prorate a worker’s salary when that person is on unpaid FMLA leave, or when an employer puts a worker on part-time status as a reasonable accommodation under ADA. However, those are specialized situations, and the employee must be aware that they are covered under FMLA or ADA.

The US Department of Labor levies hefty fines against employers who try to fraudulently use these – or any — tactics to avoid overtime.

Now to address the PTO issue. PTO or Paid Time Off is an optional benefit that some employers provide. It is entirely at the employer’s discretion. In one sense, PTO simply sets a limit on how much time each employee can take off of work. As long as the employee is paid his or her usual salary in full, there is nothing to prevent the employer from designating a part of that payment as “PTO.” Companies should establish and abide by consistent PTO policies and apply them fairly to all employees.

What if the worker has exhausted all of his or her PTO, and works half a day? Legally, the employer needs to pay the entire salary. Failure to do so could result in changing the employee’s exempt status. However, the employer would be well within his or her rights to discipline the employee in writing, or even fire the employee for taking too much time off.

The federal FLSA covers most employers in Kansas, including those who do business across state lines, and those with revenue over $500,000 per year. If this question concerns a smaller employer, please post another question for a more specific answer.