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As anyone who has worked with the Fair Labor Standards Act is aware, the “devil is in the details.” Employers and their counsel need to understand precisely how the Department of Labor applies its regulations in order to determine whether overtime is correctly being denied or paid. This is particularly so in light of the revisions to the FLSA’s regulations that took effect late last summer. In early January, the Department of Labor issued its first opinion letters since the revisions addressing issues under the FLSA, both old and new. DEDUCTING FROM PTO BANK Initially, the DOL addressed the question of whether an employer can deduct time from an employee’s paid time off (PTO) bank while preserving the employee’s salaried or exempt status under the FLSA. The letter begins with the presumption that the employee is properly classified as an exempt employee under the FLSA and its regulations. Part of the test for exempt status is for the employee to be paid on a salaried basis. The regulations state that an employee will be considered to be paid on a salary basis if he or she “regularly receives each pay period on a weekly or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” The regulations provide, however, that deductions from salary may be made when the employee is absent for one or more days for personal reasons, other than sickness or disability, so long as the deductions are made in full-day increments. Finally, if the employer has a “bona fide plan, policy or practice or providing compensation for loss of salary occasioned by � sickness or disability,” it may deduct an employee’s salary for sickness or disability absences of one or more full days. A number of employers, however, have a PTO plan where an employee accrues time off which can be used either for vacation, personal days or sickness/disability absences. This time goes into a “bank,” and an employee can use the bank of paid time off when desired or necessary. The question raised to the Department of Labor was whether an employer could deduct from an exempt employee’s PTO bank for absences of less than a day due to personal reasons, accident or illness. Secondly, the issue arose of the employer’s rights and obligations when the PTO bank was empty. The department opined that the employer could reduce the employee’s accrued PTO for partial day absences. As it had stated in earlier letters, the DOL found that “it is permissible to substitute or reduce the accrued leave in the plan for the time an employee is absent from work, whether the absence is a partial day or a full day, without affecting the salary basis of payment, [so long as] the employee nevertheless receives in payment his or her guaranteed salary.” It is the salary paid, not the available PTO, which is of principal concern. Therefore, an employee must receive his/her salary even if the PTO bank is empty. The DOL stated that “payment of the employee’s guaranteed salary must be made, even if an employee has no accrued benefits in the leave plan and the account has a negative balance, where the employee’s absence is for less than a full day.” APPROVED SALARY DEDUCTION The Jan. 7 letter next addressed whether, when the PTO bank is exhausted, the employer could deduct a full day’s pay from the employee’s salary for a sickness/disability absence. The answer to this question was “yes,” so long as the deduction is made under a bona fide plan. The DOL noted that “a PTO plan may qualify as bona fide even though it is not exclusively for use during sickness or disability.” ADMINISTRATIVE EXEMPTION The second letter issued on Jan. 7 is the first to apply the revised definitions regarding the exempt categories since the new regulations were issued last year. In the particular letter, the employer sought an opinion as to whether an accounting clerk qualified for the administrative exemption under §13(a)(1) of the FLSA. The regulations require that an employee who is eligible for the administrative exemption to overtime must primarily perform office or non-manual work “directly related to the management or general business operations of the employer or the employer’s customers.” Furthermore, the employee’s primary duty must include “the exercise of discretion and independent judgment with respect to matters of significance.” In the scenario presented to the Department of Labor, the employee in question served, essentially, as a receptionist/office manager, while performing data entry for accounts payable and receivable. The position also was required to work with subcontractors with respect to various issues. Significantly, the DOL highlighted that “the phrase ‘discretion and independent judgment’ must be applied in light of all the facts involved in the particular employment situation in which the question arises.” Among the factors to be considered are whether the employee has the authority to formulate, affect, interpret or implement management policies; whether the employee carries out major assignments; and whether the employee has authority to deviate from practices and act independently in his or her job. The department applied the regulations to the job described and found that the duties and responsibilities of the employee did not meet the primary duty test for the administrative exemption. “Among other things, it [appeared] that the employee [did] not have the authority to make independent choices, free from immediate direction and supervision � rather, the employee [was] simply performing duties that involved clerical or secretarial work, recording or tabulating data and [was] performing other mechanical, repetitive and routine work. The regulations clarify that such work does not involve the exercise of discretion and independent judgment.” It would seem as though the job that was the subject of the opinion letter, in reality, played a critical role in the business’s functioning. However, the job description likely did not convey the reliance on the position and the day-to-day discretion that may well have been exercised. As such, there appears to have been little question but that the position would be classified as hourly, not salaried. Although the job description is not dispositive, it is a critical element in the hourly/exempt review and should accurately reflect the full extent of an employee’s duties. Sid Steinberg is a partner in Post & Schell’s business law and litigation department. He concentrates his national litigation and consulting practice in the field of employment and employee relations law. Steinberg has lectured extensively on all aspects of employment law, including Title VII, the FMLA and the ADA.

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