Without a doubt, complying with California and federal wage-and-hour rules is difficult. For example, making deductions from the regular salary ofwho are absent can destroy their exemptions and mean back pay for overtime.
Thankfully, there is a safe harbor. Employers that stop regular salary payments pursuant to a bona fide sick leave policy and substitute disability payments, paid sick time or California State Disability Insurance (SDI) plan benefits don’t destroy the exemption.
Recent case: Tiffany Sumuel and several other exempt employees who were paid on a salary basis sued their employer for unpaid overtime plus penalties. They claimed their employer’s temporary disability plan did not pay their full salaries, even when they worked part of the week. They said it amounted to a salary deduction plan that destroyed their exempt status and, therefore, they were eligible for overtime pay.
The plan worked like this: Employees who fell ill during a workweek and would be out more than seven days were immediately removed from the payroll effective on their first day off—even if they had worked one or more days that week. Employees would then apply for benefits under California’s SDI plan. The company would pay the difference between what the plan paid and the employees’ salaries.
The employees argued that employers could make salary deductions for full-day absences due to illness only if there was a bona fide short-term disability plan. They contended the state system didn’t qualify as such a plan.
The employer argued that the state plan was such a plan, and that the company could coordinate its disability payments with that plan. The court agreed and said the deductions made before the state plan kicked in (there is a one-week waiting period) didn’t destroy exempt status. It dismissed the case. (Sumuel v. ADVO, No. A115921, Court of Appeal of California, First Appellate District, 2007)