Ask the Expert: How Should Employers Account for Short PTO for Exempt Employees?

Whether exempt employees can be required to use their paid time off (PTO)—such as vacation and sick leave—in full-day, half-day, or hourly increments is a common source of confusion in HR.

The Fair Labor Standards Act (FLSA) requires that exempt employees receive a fixed weekly salary, regardless of the number of hours they work each week. There are exceptions to this rule, but permissible salary deductions are generally limited to instances in which an exempt employee takes a full day off for personal or vacation-related reasons without working for any part of that day. 

Deductions from an exempt employee’s salary for illness-related absences are allowed only if the employer has a bona fide plan or policy that explicitly outlines such a practice.

For disciplinary suspensions, salary deductions may be permitted in cases of workplace misconduct or safety violations, but they must comply with FLSA regulations. Employers must be cautious because improper salary deductions can jeopardize the exempt status of the employee and others in the same job class, potentially leading to costly overtime liabilities. 

It’s important to note that applying PTO to cover hours not worked does not constitute a deduction from an exempt employee’s salary. Employers are allowed to allocate PTO in hourly, partial-day, or full-day increments to satisfy the FLSA’s salary basis requirement. However, many employers opt to apply PTO only in half-day or full-day increments because it helps maintain employee morale, especially for exempt employees who often work extended hours. Requiring an employee who frequently works late or starts early to use PTO for brief absences—such as an hour for a doctor’s appointment—can cause employees to feel undervalued and cultivate staff dissatisfaction.

To avoid misunderstandings, employers should ensure that the company’s PTO policy clearly outlines how leave will be applied to exempt employees’ time not worked. The policy should be uniformly enforced and communicated to all affected employees. 

 Employers also need to consider state laws when it comes to this practice because a few states have their own salary basis requirements. In addition, city and county laws may have paid sick, anytime, small necessities, and other leave laws that limit the time increments that employers can apply to time not worked and accordingly deduct from an employee’s PTO.

Regan Gross, SHRM-SCP, is an HR Knowledge Advisor for SHRM.