- Setting a precedent. A Philadelphia-based federal appeals court recently ruled that accrued paid time off is not considered to be part of a worker’s salary. It’s the first time an appeals court was asked to rule on such a matter.
- Don’t use it as a guidepost. The ruling, which found that employers can claw back PTO when employees do not meet productivity goals, should not inform PTO policy and practices for employers, experts advise.
- More applicable in certain industries. Tying PTO to weekly productivity may be more prevalent in very specific industries, such as home healthcare, where production metrics can directly be correlated to time spent on work tasks.
- Quality PTO policies are good for business. Time off is important for employees to recharge and reduces the risk for burnout, which is conducive to productivity. Employers need to create environments that support time off and create policies and practices that set boundaries for the person on vacation and standards for their manager and co-workers on what to do when they’re out.
A recent federal appeals court ruling found that employees’ accumulated paid time off is not a part of their salary under U.S. wage law, meaning employers can take away paid leave when salaried employees do not meet productivity quotas.
According to Reuters, the case marked the first time that a U.S. appeals court was asked whether PTO counts as part of an employee's salary. The question is of concern to employers because salaried workers can become eligible for overtime pay if employers make deductions from their wages.
Despite the ruling, which sets a legal precedent for now, workplace experts do not advise implementing such practices that put employee PTO at risk.
Not a Guidepost
Alex Henry, a national practice leader at WTW, said he wouldn’t recommend using this case as a guidepost around which to build an effective and compliant PTO policy.
“Had this case been argued based on the assertion that the employer’s policy violated Pennsylvania (or other equivalent state-specific fair-labor acts), the outcome may have favored the plaintiff,” he said. “So I would caution against applying the outcome of the ruling more unilaterally given the nuance of state-specific laws.”
He said employers should avoid this policy design when crafting their PTO policies, which are intended to incentivize employees to rest and recharge away from the workplace. Paid time off is a necessity for many, he said, adding that it is required under many state and city sick-leave laws. PTO also can drive attraction and retention and improve business outcomes, Henry added.
“Not meeting company objectives or metrics should not result in the removal of PTO,” he said.
With its unanimous ruling, the federal appeals court said that while a salary is a fixed amount of compensation paid out at regular intervals, PTO is a fringe benefit that has no effect on a worker's wages and can be paid irregularly, such as when an employee leaves a company.
The court ruled that because Bayada Home Health Care Inc. deducted PTO when employees did not reach a weekly productivity quota, they were paid based on how much they worked and were not salaried employees exempt from overtime pay under the federal Fair Labor Standards Act (FLSA).
So what does this ruling mean for other employers’ PTO policies going forward?
Stephanie Mills-Gallan and Adam Fiss, shareholders at Littler Mendelson P.C, expect that tying PTO to weekly productivity may be more prevalent in very specific industries, such as home healthcare, where production metrics can directly be correlated to time spent on work tasks.
“It may be appropriate for certain organizations, considering their goals, their work industry and the nature of their employees’ work,” they said.
However, employers should be cognizant of statutory paid sick and safe time or mandatory paid-leave laws that could interfere with such an approach, they added.
“For example, New Jersey’s Earned Sick Leave Law explicitly prohibits employers from requiring employees to use their accrued earned sick leave to cover an absence from work.”
Time Off Matters
The concept of paid time off is to provide income replacement when an employee is unable to work due to illness, injury or simply taking time to mentally or physically recharge.
If an employee is missing productivity goals they may be more in need of time off to rest and recuperate, Henry said, “so to take that cohort of employees and remove or reduce their ability to access time off could be counterproductive.”
Deanna Baumgardner, president of Employers Advantage LLC, said there are a few easy steps on the path to creating a safe culture around taking time off.
“Employers need to create environments that support time off,” Baumgardner said. “Create policies and practices that set boundaries for the person on vacation and standards for their manager and co-workers on what to do when they’re out.”
Paid-time off practices Baumgardner’s recommends include:
- Instituting a “work buddy” program where each employee has a co-worker who covers for them while they’re away from work.
- Putting the company’s messaging app on vacation mode, turning off notifications and delaying delivery of emails until the employee returns to work.
Such actions can reduce employees’ temptation to handle work-related tasks while taking time off and instead focus on enjoying that break from work.
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