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guide for salaried exempt employees and paid vacation leave by elh HR foresight many employers have chosen to designate some of their employees as exempt for purposes of overtime requirements as permitted by federal and state overtime laws in most situations when an employer designates an employee as exempt they must pay the employee on a salary basis one of the costs of paying an employee on a salary basis is that the employer has limited ability to reduce the weekly salary of the employ employee when the employee does not perform work for part of the work week one of these limited exceptions involves personal leave this exception for personal leave and how it works with paid vacation leave policies is discussed below the fair labor standards act as well as all states exempt certain employees from their overtime requirements the three most common exemptions include administrative employees executive employees and professional employees for an employee to qualify for one of these exemptions the employee must meet a minimum set of criteria although the criteria differ for each exempt classification they each have at least one criteria in common they require that the qualifying employee be paid on a salary basis salary basis the salary basis form of compensation requires an employer to pay covered employees a predetermined fixed amount of income that does not vary based on the number of hours the employees work the salary must be based on a period of time no shorter than a work week moreover except in a very few limited circumstance ances employers must pay salaried employees their full salary for any work week in which work is performed salary basis and personal leave not including sick or disability leave one of the few exceptions to the requirement that an employer pay a salaried employee his or her entire salary for any work week in which the employee performs work involves personal leave employers May deduct the equivalent of one day's pay for any day in which an employee does not perform any work for personal reasons not including sickness or disability which is covered by a different exception the key here is that when an employee does not work for personal reasons an employer may only make a deduction for whole day absences if the employee Works any portion of the day the employer may not deduct the Miss time from the employes pay for example if a salaried exempt employee works for 4 hours in the morning on a Friday and then leaves work to get an early start on a weekend vacation the employer must still pay the employee for the entire Friday salary basis personal leave and paid vac benefits although an employer must pay a salaried exempt employee for the entire day in which the employee performs any work this does not mean that the employer may not make partial day deductions from the employees acred or promised paid vacation leave the reason for this is that federal and state laws only require the employer pay the employee his or her entire day's pay when work is performed it does not dictate how the employer accounts for this pay in the situation involving paid vacation leave the employer accounts for an employees pay for partial day absences by reducing the employees available paid leave using the example from above the employee worked 4 hours in the morning and then left work to get an early start on a weekend vacation let's assume the employer has a vacation leave policy that provides the employee with 80 hours of paid leave each year and the policy allows employees to take leave in 1hour increments in this situation the employer ensures the employee is paid his full day's pay but does so by reducing the employees vacation leave allotment by 4 hours salaried employees who have exhausted their paid vacation leave employers May reduce a salaried exempt employees vacation leave allotment for partial day absences but what happens when an employee has used up their entire vacation leave allotment unfortunately in these situations an employer's hand are tied and they must still ensure the employee receives his or her full days pay the law does not relieve an employer of this requirement even in situations where an employee may have been Reckless or unwise in using paid vacation leave employers May Implement policies that discipline salaried exempt employees for taking more personal leave than is covered by allotted vacation leave amounts but they may not reduce the employees pay for partial day absences after paid vacation leave has been exhausted doing so may have the effect of converting the employee into a non-exempt employee making them eligible for overtime pay once again using the example from above let's assume that the the employee that only worked for 4 hours on a Friday before leaving for a weekend vacation had previously used all 80 hours of his paid vacation leave allotment in this situation the employer would still be required to pay the employee his entire salary for the work week because the employee worked for part of the day on Friday this is true even though the employee has exhausted his paid vacation leave allotment the employer could discipline the employee or perhaps deduct time from future vacation leave allotments but it may not reduce the employees pay for the week without running the risk of losing the employees exempt status conclusion one of the costs of designating an employee as salaried and exempt is that the employer may only reduce the employees weekly pay in a limited number of circumstances one of these exceptions occurs when an employee does not perform any work for an entire day for a personal reason as discussed this exception is limited to whole day absences and does permit an employer to reduce an employes weekly salary for partial day absences the rule does not however limit an employer's ability to reduce a salaried exempt employees vacation leave allotment although once an employee has exhausted his or her leave allotment the employer remains obligated to ensure that the employee is fully compensated even on days of partial absence