FAQ: How do Absences Affect an Exempt Employee’s Salary?

HR Advisors at CEA answer more than 1,000 calls each month from our members with various HR questions, from what paperwork is required at the time of hire, to important considerations at termination, and everything in between: leaves of absence, alternative workweeks, workers’ compensation, proper pay practices, and COVID regulations (you name it).

One question that keeps popping up is how to calculate an exempt employee’s salary when they are absent from work. While the question may seem simple enough, there is no simple answer, as it depends on the circumstances. Need a refresher? Keep reading to make sure you understand California’s obligations for your salaried employees.

Exempt Employee Classification

Let’s start with some background. “Exempt employees” are paid on a salary basis (rather than hourly) and are not subject to most wage and hour requirements, including timekeeping, overtime, meal and rest breaks, etc. While an employer may wish to simply pay someone a salary and classify them as “exempt,” this is not enough to get around the wage-and-hour requirements. Instead, the employee must satisfy both a duties test and a salary minimum. CEA members can access our Exempt Analysis Worksheets for assistance on the duties test and current salary requirements.

Salary Basis Test

Additionally, to maintain exempt status under the white-collar exemptions (i.e., executive, administrative, and professional), the employee must be paid their full salary for a workweek in which they perform any work. This is known as the “salary basis” rule.

Therefore, when one of your exempt employees is absent for part of the workweek, you should start with the assumption that they will receive their full salary. Remember, the hallmark of an exempt employee is that they are paid for the skills they bring to the job – not the number of hours they work.

Permitted Deductions from Salary

There are some exceptions to this rule when an employer may deduct an exempt employee’s salary for absences. Here they are:

• Employers may prorate an exempt employee’s salary for their first and last week of work for full-day absences.
• Employers may deduct from an exempt employee’s salary for a full-day absence for personal reasons.
• Employers may deduct from an exempt employee’s salary for a full-day absence if the employee is out due to sickness or accident, was participating in a bona fide plan that provided for full salary replacement, and the employee has: (1) either yet to qualify for sick leave under the plan, or (2) has completely exhausted all benefit under that plan. The law is not clear about what constitutes a “bona fide” plan, so it is recommended that employers consult counsel on this issue.
• Employers may make deductions from an exempt employee’s salary for hours taken as intermittent or reduced FMLA and CFRA leave. (Note: This is the only exception when an employer can make salary deductions for partial-day absences.)

Partial Day Absences

The big takeaway is that employers can’t dock an exempt employee’s salary when they are absent from work for only part of a day (with one exception noted above for FMLA/CFRA). You must pay the employee for the entire day if they perform any work (i.e., even just checking a few emails or making phone calls).

However, employers can deduct from an employee’s accrued vacation or PTO bank in any time increment (including for partial day absences), without jeopardizing the employee’s exempt status. Therefore, employers should remember there is a difference between deducting from an employee’s salary versus deducting hours from their vacation/PTO bank.

Calculating Pro-Rata Deductions

Now, let’s assume that your exempt employee falls under one of the full-day exceptions above and they don’t have accrued time available for use. This is how you calculate their pro-rated salary, based on qualifying full-day absences:

1. The employee’s annual salary is divided by 52 (the number of weeks in a year) to find the weekly salary.
2. Divide the weekly salary by the usual number of days the employee is scheduled to work in a workweek. This will give you the daily salary. (Note: The DLSE states that the divisor cannot be less than five, nor more than six. In other words, an employee’s salary may not be reduced by more than one-fifth, even if they work less than five days/week.)
3. Deduct the daily salary from the weekly salary for each qualifying full-day absence.

There may be other circumstances when the employee has accrued time available for use, meaning they would still receive their regular salary amount, but you would be able to deduct the time from their vacation/PTO bank accordingly. For additional examples, CEA members may refer to our Exempt Employee Deductions Fact Sheet on the HR Forms Page, and give us a call at 800.399.5331 with questions!