Employers are increasingly replacing vacation and sick leave with paid time off (PTO). PTO lets employees take time off for any reason without feeling they have to lie about the reason for their absence. With PTO, employees do not have to call in sick when they are not sick, or pretend to have a migraine when they want to leave early to go to a sporting event. PTO policies typically provide for employees to accrue PTO on a monthly basis and permit employees to take PTO in intervals ranging from an hour to a week. At an employer’s discretion, employees can use PTO before it is accrued and may be required to “pay” their employer back through future earnings or, under certain circumstances, from their final paycheck.
Although PTO may simplify the reasons for leave, it can be complicated to administer for exempt and non-exempt employees with respect to partial day absences. Employers may require both exempt and non-exempt employees to use PTO for partial day absences. However, employers must treat exempt and non-exempt employees differently once the employees’ have exhausted their PTO.
When a non-exempt employee takes time off after they have exhausted their PTO, the employer need not pay the employee for the absence, it is simply unpaid time off. In contrast, when an exempt employee has exhausted their PTO, an employer cannot deduct for a partial day absence and must continue to pay the employee their full salary (or risk losing the exemption). This is because deductions from an exempt employee’s salary are only permitted for full day absences for personal reasons or for sickness or disability where the employer has a plan to reimburse loss of salary for sickness or disability. So, an employer can require an exempt employee to take PTO for partial day absences, but once the employee exhausts their PTO, the employer cannot deduct from the exempt employee’s salary for the partial day absence. Instead, the employer can discipline or terminate the employee for excessive absenteeism or for abusing their salaried status.