Payroll in Practice: 3.27.2023

Question: A salaried employee was on sick leave for most of a workweek and had one day of paid time off remaining for the year at the beginning of the workweek. The employee was due one day of holiday pay and worked 2.5 hours on one day and 6.75 hours on another day during the week. How many days’ pay should the employee receive for the workweek?

Answer: Salaried employees may be exempt or nonexempt from overtime. Generally, employees that are exempt under the white-collar exemption rules must be paid on a salaried basis, but not all salaried employees are exempt. The paid time off rules for salaried exempt employees differ from the PTO rules for salaried nonexempt employees.

A salaried nonexempt employee must be paid for all hours worked during a workweek. Additional holiday pay due to the employee under company policy should be paid as well. However, if the employee did not work on the holiday, then the hours do not have to be counted as hours worked. The company sick leave policy, sick pay plan, state or local paid sick or family leave requirements, unpaid intermittent FMLA leave, and PTO may also factor into whether a nonexempt employee is paid for hours when no work is performed.

PTO is irrelevant unless the employee asks to use it or company policy requires an employee to use it. PTO may also be coordinated with other pay for time not worked. For example, PTO might be used to cover legally required paid sick leave if the PTO plan allows PTO to be used for sick leave as well as personal days off. Under these plans, if the employee has used all the PTO for other purposes, the employer usually is not required to offer additional paid sick leave days.

A nonexempt employee in the described situation should receive the holiday pay, regular pay for the nine hours worked during the workweek, any required sick pay, and one day of PTO if elected or required to be used instead of sick pay.

If the employee is exempt, then the two partial days should be paid as full days. However, from a cost accounting standpoint, the employer may charge the partial time worked to production and the PTO time to the time not worked. That counts as having paid the full salary for those days.

If there was no unused PTO remaining for that employee, the employee would still have to be paid their full salary for the two partial days. The employer would then have to decide how to charge the time off in the cost records. The employee would also have to be paid their full salary for the time off due to sickness or disability unless the employee was provided full replacement of the salary under a sick pay plan or was taking unpaid intermittent FMLA leave for the time off work.

Theoretically, exempt employees are paid for what they do and not for how long it takes them to do it. An exempt employee should receive their equivalent of the full salary for the workweek in the described situation. This could be a combination of regular salary plus equivalent salary replacement payments for the workweek, including holiday pay, PTO, or sick pay. A deduction from weekly salary would be made for any hours the employee takes for intermittent FMLA leave. For accounting purposes, the salary or replacement payments should be charged to the appropriate account(s) for that employee.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

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