Are you taking part-day deductions from the leave banks of employees exempt from overtime when the employees leave work early because of illness or vacation? If so, you need to be aware of a new regulation that takes effect on February 21, 2003.
To be exempt from the payment of overtime under the Washington Minimum Wage Act ("WMWA"), an employee must generally: (1) be paid on a "salary basis"[1] and (2) meet a duties test for that particular exemption.
Your "exempt" employee may fail the "salary basis" test if you incorrectly make part-day deductions from leave banks.
The Washington Department of Labor & Industries ("L&I") has issued a new regulation that defines "salary basis" for the purpose of exemptions under WMWA. Among other issues, the regulation addresses part-day deductions from leave banks.
Under the new regulation, an employer may take a part-day deduction from a leave bank only if:
- The deduction is made from a bona fide leave bank.
- The employee expressly or impliedly requests time off work.
- The deduction is made for at least one hour's worth of time.
What is a "bona fide leave bank?" Leave in a "bona fide leave bank" must be a benefit provided to employees for absences from work because of illness or personal time off. It must be in writing, contained in a contract or agreement, or in a policy distributed to employees.
Caution: Except for deductions for incremental leave taken pursuant to the federal Family and Medical Leave Act ("FMLA"), private employers may not make any part-day deductions from the salaries of exempt employees.
Employers should review their leave policies and practices to make sure that they are complying with the new regulation and should make sure that their supervisors understand how to comply as well. Redistributing the policy to all employees is also a good idea.
"I've made a deduction I shouldn't have––what can I do?"
This new regulation also creates a limited "window of correction" during which the employer can correct improper deductions from pay or leave banks. This window can be used only if the improper deductions are infrequent and inadvertent, and if the employer immediately begins taking corrective steps to promptly resolve a situation when it is brought to the attention of the affected employee's supervisor or another appropriate company representative. If a deduction is due to lack of work, or is part of a pattern of similar deductions, then the window of correction is not available.
To make sure that this window is available to you, you should have clear guidelines on deductions in place, enforce the guidelines, and train your supervisors to consult with the appropriate personnel before authorizing any deductions.
All thanks to Drinkwitz:
For those of you who have heard us speak of Drinkwitz v. Alliant Techsystems, you will recognize that this regulation is in response to that case.
In April 2000, the Washington Supreme Court issued its opinion in Drinkwitz, creating confusion and uncertainty for employers, particularly in the area of part-day deductions from leave banks, such as those for vacation and sick time. The court held that taking a part-day deduction from a leave bank could be a factor in determining that an employee was not actually paid on a salary basis and therefore was not exempt. This raised the concern that Washington employers that utilized part-day deductions from leave banks could be jeopardizing the exempt status of every one of their employees.
In reaction to this opinion and the confusion among employers, L&I began a rulemaking process in which it involved representatives from the employer community, unions, and others to craft the current regulation. Miller Nash partner Susan Stahlfeld, actively participated in one of the employer groups involved in the negotiations. While the regulation is not exactly what employers were looking for, it does answer many questions and sets down rules that employers can follow.
The new regulation will soon be available on the L&I Web site (http://www.lni.wa.gov/) for your further review. If you would like a copy of the regulation now, please contact Molly Dore at mdore@millernash.com.
[1] A rarely used option exists for some exemptions: paying the employee on a "fee basis." Please contact one of our attorneys for further information. Also, a computer professional can be exempt if paid hourly at the rate of at least $27.63 per hour.