Deductions From Salaries

by | Aug 28, 2025 | Employee Management

Do I Have To Pay Exempt Employee Their Full Salaries If They Are Sick?

Almost two decades ago I wrote an article about proper and improper deductions from salaries of exempt employees. Although time has passed, I still get the same question: “When can I deduct money from an exempt employee’s salary?” The answer is important because if an employer makes impermissible deductions, the employee may lose exempt status under federal and California law. That misstep can expose the employer to significant liability for overtime pay and related penalties.

Both the U.S. Department of Labor (DOL), under the Fair Labor Standards Act (FLSA), and California’s Division of Labor Standards Enforcement (DLSE) provide rules governing deductions from exempt employee salaries. While federal law provides a baseline, California often enforces stricter standards—and employers must follow whichever rule is more protective of employees.

General Salary Basis Rule

Employees treated as exempt under the Executive, Administrative, or Professional exceptions must be paid on a “salary basis.” This means the employee receives the same regular, predetermined amount of pay for each workweek, regardless of the number of hours worked.

If the employee performs no work at all during a full workweek, the employer does not have to pay any salary for that week. But when the employee performs any work in a week, the full weekly salary is generally owed—subject to limited permissible deductions.

Deductions That Are Permissible

The following deductions are generally allowed under federal and California law:

  1. Full-Day Absences for Personal Reasons
    • If an exempt employee misses a full day (or multiple full days) for personal reasons unrelated to illness or disability, the employer may deduct pay for those days. Partial-day deductions are not allowed.
  2. Full-Day Absences for Sickness or Disability
    • Employers may deduct salary for full-day absences due to sickness or disability only if the deduction is made in accordance with a bona fide sick leave or disability plan, and the employee has already exhausted their available leave under that plan.
    • Employers must provide sick leave or PTO before withholding pay for illness.
    • Employers may deduct for time off under the California Family Rights Act and/or the Family Medical Leave Act since those leaves are specifically “unpaid.”
  3. Workplace Closures of a Full Week
    • If the employer closes the business for an entire workweek, no salary is owed (so long as the employee performed no work that week).
    • If the closure is less than a week, the exempt employee must still be paid their full salary, provided they were ready and willing to work.

Deductions That Are Not Permissible

  1. Partial-Day Absences
    • Employers may not deduct salary when the exempt employee works part of a day—even if the absence is several hours.
    • Key Case: Conley v. Pacific Gas & Electric suggested that docking PTO banks for fraction-of-day absences was improper if it operated like an impermissible pay deduction. Later, in Rhea v. General Atomics (2014), the California Court of Appeal clarified that employers may require exempt employees to use their accrued vacation or PTO for partial-day absences. Importantly, this ruling held that while partial-day deductions from salary remain prohibited, charging PTO balances is allowed—even in increments as small as fractions of a day—provided that the employee still receives their guaranteed salary.
  2. Sick Leave Without a Plan
    • If no sick leave or disability policy exists, or if the employee has not yet exhausted their paid time off, the employer may not deduct the employee’s salary for sickness-related absences.

Since all employees in California receive paid sick leave, this provision won’t apply in California. It would apply, however, to employees working outside California.

  1. Business-Related Shutdowns (Short of a Full Week)
    • No deduction may be made when the business shuts down for part of a week (e.g., two days for a holiday or emergency). If the employee is able and willing to work, their salary must be paid.

Recent Legal and Legislative Developments

  • California Paid Sick Leave Expansion:
    The Healthy Workplaces, Healthy Families Act of 2014 created mandatory paid sick leave for most employees, including exempt staff. Beginning in 2015, employers had to provide at specified amounts of paid sick leave per year, with accrual rules. Amendments in 2023 and 2024 now require at least 5 days (40 hours) of accrued paid sick leave.

Employers should review policies to ensure both compliance with state sick leave minimums and consistency with exemption rules.

  • Clarification in Case Law:
    Following Rhea, courts have continued to affirm that differentiating between salary and PTO banks is critical. Employers cannot dock salary for partial-day absences, but they may reduce accrued PTO accordingly. This distinction allows employers to enforce attendance expectations while preserving exempt status.

Bottom Line for Employers

For exempt employees:

  • Do not deduct salary for partial-day absences.
  • Full-day deductions are allowed for personal reasons or sickness/disability only after leave is exhausted under a bona fide plan.
  • You may reduce PTO balances for partial-day absences, including hours, without violating the salary basis test.
  • Closures short of a full week require payment of salary if employees are ready and willing to work.

Because California law is generally stricter than federal law, California employers must carefully follow DLSE guidance, state statutes, and applicable case law. Updating your PTO and sick leave policies to align with these rules reduces risk of misclassification and costly wage claims.

If you have questions about paid sick leave, workplace absences, or whether a particular position is exempt from overtime, contact the Nuddleman Law Firm. We help employers and employees navigate California and Federal employment laws.