FLSA2006-32 — Bona fide sick/vacation leave plan and section 13(a)(1)

U.S. Department of Labor
Employment Standards Administration
Wage and Hour Division
Washington, D.C. 20210

FLSA2006-32

September 14, 2006

Dear Name*:

This is in response to your request for an opinion concerning whether your client’s
sick/vacation leave plan qualifies as a bona fide plan under the regulations implementing
section 13(a)(1) of the Fair Labor Standards Act (FLSA). Based on the analysis below, we
conclude that the sick/vacation plan you described is a bona fide plan.

Your client’s sick/vacation leave plan provides, in pertinent part:

One year after [the] start date the employee is eligible for 40 hours off with pay. After
two years the employee will receive 80 hours off with pay. After 10 years[, the
employee will receive] 120 hours [off with] pay. All vacation must be taken in . . . full
work day [increments,] not an hour at a time. [For e]xample some departments may
work 10 hour days[, which means those employees would be entitled to 4 days off.]
Also one sick day is paid per year. [Salespeople] must take vacation one week at a
time.

In subsequent letters clarifying your client’s leave plan, you state that, for purposes of this
request, we are to assume that the employees in question otherwise qualify for the exemptions
under FLSA section 13(a)(1). You note that one sick/personal day is provided per year to
allow employees to take their birthdays off, use as a sick leave day, or for any other reason.
The plan also allows an employee who is ill, or who has a doctor’s appointment, to use
vacation leave in half-day increments. In addition, under the plan, a salaried employee’s leave
balance will not be reduced for situations such as arriving one to two hours late to work due to
illness or a doctor’s appointment. The plan does not allow employees to accrue vacation and
sick leave; leave earned each year must be used by the employee’s anniversary date. An
AFLAC short- or long-term disability plan is offered to all employees at their own cost.

You ask whether the sick/vacation leave plan as described allows the employer to make salary
deductions for employees who have either (1) not qualified for leave or (2) exhausted their
leave allowance.

FLSA section 13(a)(1) provides a complete minimum wage and overtime exemption for any
employee employed in a bona fide executive, administrative, professional, computer or outside
sales capacity, as those terms are defined in 29 C.F.R. Part 541. An employee may qualify for
exemption if all of the pertinent tests relating to duty and salary, as discussed in the appropriate
sections of the regulations, are met. One such test requires that an exempt employee be paid on
a salary basis, as described in 29 C.F.R. § 541.602. The section relevant to your inquiry is 29
C.F.R. § 541.602(b)(2), which relates to deductions from pay in the context of a bona fide
sickness or disability plan.
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The Department issued revisions to the 29 C.F.R. Part 541 regulations exempting certain executive,
administrative, professional, computer and outside sales employees, that were published as a final rule in the

As stated in 29 C.F.R. § 541.602(a),

[a]n employee will be considered to be paid on a “salary basis” . . . if the employee
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.

This section further provides that the salary basis requirement is not met if an employer makes
deductions from the employee’s predetermined compensation except for limited circumstances
enumerated in 29 C.F.R. § 541.602(b).

One permitted deduction is:

for absences of one or more full days occasioned by sickness or disability (including
work-related accidents) if the deduction is made in accordance with a bona fide plan,
policy or practice of providing compensation for loss of salary occasioned by such
sickness or disability. The employer is not required to pay any portion of the
employee’s salary for full-day absences for which the employee receives compensation
under the plan, policy or practice. Deductions for such full-day absences also may be
made before the employee has qualified under the plan, policy or practice, and after the
employee has exhausted the leave allowance thereunder. . . .

29 C.F.R. § 541.602(b)(2).

Where an employer has a bona fide benefits plan (e.g., vacation time, sick leave), it is
permissible to substitute or reduce the accrued leave in the plan for the time an exempt
employee is absent from work, whether the absence is a partial day or a full day, without
affecting the salary basis of payment, if the employee nevertheless receives payment of his or
her guaranteed salary. Where the employee’s absence is for less than a full day, 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. See Wage and Hour Opinion Letter
FLSA2005-7 (Jan. 7, 2005). We note that an employer is not required to establish a paid sick
leave plan; if an employer does not have a bona fide sick leave plan for its exempt employees,
however, it may not make deductions from their salaries for absences due to sickness or
disability without violating 29 C.F.R. § 541.602(b)(2).

The Wage and Hour Division has found that a plan that has defined sick leave benefits that
have been communicated to eligible employees, and that operates as described in the plan, will
in general qualify as bona fide. In addition, to be bona fide, the plan must be administered

Federal Register on April 23, 2004 (69 Fed. Reg. 22,122). The revised 29 C.F.R. Part 541 regulations went into
effect on August 23, 2004. The old rule addressed the issues you have raised at 29 C.F.R. § 541.118. This opinion
cites to the revised final regulations, but is applicable under both the old regulations and the revised final
regulations, as there have been no changes in the specific areas about which you have inquired. See Wage and
Hour Opinion Letter FLSA2005-7 (Jan. 7, 2005).
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impartially, and its design should not reflect an effort to evade the requirement that exempt
employees be paid on a salary basis. See Wage and Hour Opinion Letters FLSA2005-7 (Jan. 7,
2005) and August 15, 1972 (copy enclosed). It is also our position that a reasonable number of
absences on account of sickness ordinarily must be allowed without loss in pay to exempt
employees. See Wage and Hour Opinion Letter March 8, 1945 (copy enclosed). Whether a
particular plan is bona fide would be based upon the actual design of and practices applicable
under the plan.

Given the fact-specific nature of the inquiry, there is no bright-line test articulating how many
days and how short a waiting period are required for a plan to be bona fide. The Wage and
Hour Division, however, previously has approved leave plans that allow for at least 5 days of
sick leave per year as bona fide under the regulations. See Wage and Hour Opinion Letters
July 21, 1997; November 20, 1995; April 14, 1992; and August 15, 1972 (copies enclosed).
Moreover, with respect to a qualifying period, the Wage and Hour Division previously deemed
a leave plan that required one year of service prior to payment of sick pay benefits to be bona
fide. See Wage and Hour Opinion Letter March 1, 1982 (copy enclosed).

With regard to your client’s sick/vacation leave plan, we note that the employer provides an
employee one week of vacation and one day of sick/personal leave (6 days total) after one year
of employment, two weeks of vacation and one day of sick/personal leave (11 days total) after
two years, and three weeks of vacation and one day of sick/personal leave (16 days total) after
ten years of employment. Salaried employees may use the leave in half-day increments when
they are ill, and they do not have to use leave if they are out for only an hour or two due to
illness or a doctor’s appointment. Because an employee under this plan is able to use vacation
leave for sickness or illness, your client’s plan in practice provides the same level of sick leave
coverage as the plans identified aboveplans we previously have concluded provide a
sufficient amount of leave to allow a reasonable number of absences without loss in pay to
exempt employees. Given our opinion that the amount of sick leave provided by your client’s
sick/vacation leave plan is adequate and the qualifying period of one year under the plan is
acceptable, we believe that your client’s leave plan qualifies as a bona fide plan, provided that
the sick/vacation leave plan is communicated to eligible employees, operates as described in
the plan, and is administered impartially. Therefore, deductions for absences of one or more
full days because of sickness or disability may be made before an employee has qualified under
such a plan and after the employee has exhausted his or her leave allowance thereunder.

This opinion relates solely to the application of the FLSA and is based exclusively on the facts
and circumstances described in your request. This opinion is given based on your
representation, express or implied, that you have provided a full and fair description of all the
facts and circumstances that would be pertinent to our consideration of the question presented.
Existence of any other factual or historical background not contained in your letter might
require a conclusion different from the one expressed herein. You have represented that this
opinion is not sought by a party to pending private litigation concerning the issues addressed
herein. You have also represented that this opinion is not sought in connection with an
investigation or litigation between a client or firm and the Wage and Hour Division or the
Department of Labor.

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We trust that this letter is responsive to your inquiry.

Sincerely,

Paul DeCamp
Administrator

* Note: The actual name(s) was removed to preserve privacy in accordance with 5 U.S.C.
§ 552(b)(7).
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