Paying Employees for Paid Sick Leave: Opinion Letter Issued
The California Division of Labor Standards Enforcement (DLSE) recently issued an opinion letter regarding calculation of paid sick leave for employees who are paid by commissions and exempt employees who are given an annual, non-discretionary bonus.
Labor Code section 246(k) allows for the following three methods of payment:
- Calculate paid sick time for nonexempt employees in the same manner as the “regular rate of pay” for the workweek in which the employee uses paid sick time, regardless of whether the employee actually works overtime in that workweek (Labor Code sec. 246(k)(1));
- Calculate paid sick time for nonexempt employees by “dividing the employees total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment” (Labor Code sec. 246(k)(2)); or
- Calculate paid sick time for exempt employees in the same manner as wages are calculated for other forms of paid leave time (Labor Code sec. 246(k)(3)).
The opinion letter states that employees who are paid by commission must be paid according to options (1) or (2) above — the regular rate of pay or the 90-day look back (opinion letter, pp. 2-3). This is true, according to the opinion, even if these employees are exempt under the inside sales or outside sales exemption.
The letter states that the third method of calculation only applies to employees exempt under the professional, executive or administrative exemptions — the so-called white collar exemptions. The third method does not, according to the DLSE, apply to employees exempt under the commissioned sales exemptions.
In Labor Code section 246(k), the reference to “exempt” and “nonexempt” employee for purposes of selecting the appropriate calculation under Labor Code section 246(k) refers to an employee who satisfies both the salary and duties tests in Labor Code section515(a), and not to the outside sales exemption pursuant to Labor Code 1171 and Section l(C) of the IWC Orders, nor to the overtime exemption for commissioned salespersons pursuant to Section 3(D) of the Wage Orders as authorized under Labor Code section 515(b). (opinion letter, p. 2)
The opinion letter further addresses how to calculate payment of paid sick leave for an exempt employee (executive, administrative and professional exemption) who receives a non-discretionary bonus. The opinion letter states that the non-discretionary bonus is not factored into the payment of paid sick leave. Instead, the employee “would be paid for an amount of pay which equals his or her regular salary for the sick day.” (opinion letter, p. 3)
While DLSE opinions are not legally binding, they provide guidance as to how the Labor Commissioner is enforcing the law. Failure to follow the guidance can result in administrative citations. If you have any questions on these issues, consult legal counsel.
CalChamber members can read more about paid sick leave in The Who, What, When and How of Mandatory Paid Sick Leave in California white paper and use the How To: Implement Paid Sick Leave in the HR Library. Not a member? See how CalChamber can help you.