An employer was victorious when an appellate court recently ruled that paid time off is a fringe benefit that is not related to salary.
The 3rd Circuit Court of Appeals decision came in a case involving a home health company that hinged on whether the company was justified under the Fair Labor Standards Act in deducting paid time off from workers when they did not reach productivity goals. The court, which hears appeals from the federal district courts in Delaware, New Jersey and Pennsylvania, ruled in favor of the provider.
Bayada Home Health Care paid employees additional compensation when they reached goals but docked their PTO allotment when they fell short. Salaries were unaffected even if an employee did not have sufficient PTO to cover the shortfall.
“The case marked the first time that a US appeals court was asked whether paid time off counts as part of an employee’s salary,” Reuters reported. “The question is important because salaried workers can become eligible for overtime pay if employers make deductions from their wages.”
Under the FLSA, employees are classified as either exempt or nonexempt from the act’s minimum wage and overtime requirements. The seven co-plaintiffs in the class action suit were exempt.
According to court documents, three of the plaintiffs alleged that through the “productivity points” and Bayada’s practice of taking deductions from workers’ available PTO, Bayada improperly treated its salaried exempt employees as nonexempt employees.
The court rebuffed the complaint, however, stating that “the key question for determining FLSA classification is not whether a pay structure approximates an hourly wage or even whether an employer threatens to dock a salaried employee’s base pay; it is whether an employer made an actual deduction from an employee’s base pay. There is no evidence here that Bayada reduced the guaranteed base pay of any of the plaintiffs.”
It is irrelevant that PTO might be converted into cash at some point in the future, according to one attorney.
“The clinicians’ predetermined compensation for the weeks in which they did work did not fluctuate, so the potential monetary equivalent of PTO was immaterial,” wrote Laura Lawless, a partner at Squire Patton Boggs, in a post on the law firm’s website.
The court’s rationale aligns with longstanding guidance from the Department of Labor, according to Lawless.
“The DOL’s Wage and Hour Division explained that the salary-docking prohibitions in the FLSA overtime exemption regulations do not extend to non-monetary compensation such as vacation time or sick leave,” she wrote.
In a statement to McKnight’s, Bayada said: “At Bayada, we are a people-first organization and are committed to our clinicians who provide care in the home. The ruling in this case reaffirms that we have always provided our employees with pay and Paid Time Off (PTO) benefits in compliance with the Fair Labor Standards Act and all other relevant federal and state laws and regulations. Our employees have always been and continue to be our greatest asset and we’re committed to them far beyond our promise of fair pay and PTO. We go to great lengths to recognize and reward our employee commitment, offering nearly a dozen employee recognition programs, providing scholarships, and fostering employees’ individual growth with a variety of professional development and educational programs.”
Article updated April 7 with a statement from Bayada.
