Can an employer require exempt employees to work the scheduled day before and after a holiday in order to receive holiday pay?



This  is not an uncommon policy for an employer to adopt to discourage nonexempt employees from calling in sick and extending their time off around a company holiday. It can, however, cause major problems for the employer if the policy applies to exempt as well as nonexempt employees.

To qualify as "exempt," an employee must be paid on a salary basis. According to the federal Fair Labor Standards Act, Section 541.602, "An employee is not paid on a salary basis if deductions from the employee's predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available."

Since the company holiday is an "absence occasioned by the employer" and the employer has no way of knowing whether the employee would be "ready, willing and able to work" on that day, reducing the employee's pay for the holiday would likely violate the salary basis test.

This may cause exempt employees to be converted to nonexempt status and could result in significant financial liability for the company for having an "actual practice" of making improper deductions from salary. Per the Department of Labor, one factor in determining if such a practice exists includes "whether the employer has a clearly communicated policy permitting or prohibiting improper deductions." Therefore, an employer having a policy denying exempt employees holiday pay when they perform any amount of work in that workweek would easily allow the DOL to find that an actual practice of making improper deductions exists. If so, an employer will lose the exemption for the time period of the deductions for not just one employee but for "all employees in the same job classification working for the same manager responsible for the improper deduction." Overtime and penalties may then be owed.

Even if the employer has not actually reduced exempt employees' pay, the fact that these employees could be "subject to" such a reduction under the employer's policy may be enough for some courts to conclude that the employees are not being paid "on a salary basis." Therefore, if an employer wishes to maintain such a policy, it would be wise to specify that the policy is intended to cover only its nonexempt workforce.

For additional information on when exempt employees' pay may be docked, see When can deductions be made from exempt employee's salary?