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Paid-Time Not Part of Salary

The Third Circuit Court of Appeals decided that paid time off is not part of an employee's salary under federal wage law. No other court of appeals has ruled on this issue. Workers from Bayada Home Care, Inc., an at-home health and personal care services provider, filed a class action lawsuit because Bayada deducted paid time off when the employees did not meet time-based productivity rates. Bayada's productivity points system established the pay scale for salaried employees. When employees did not accumulate the required point amount each week, the company reviewed the discrepancy between completed and expected work and deducted it from their accumulated paid time off. The employees argued this deduction violated federal wage law because the company's productivity system operated to enable the company to compensate employees based on total hours worked. As salaried employees, the workers said this system made it seem like their compensation was tied to the number of hours worked. Under federal law, employers may not adjust salaried employees' compensation for fluctuations in the quality or quantity of their work. Workers do not receive overtime pay for this reason.

The circuit court reasoned that salary is fixed compensation paid out at regular intervals, while paid time off is a fringe benefit that has no effect on a worker’s wages and may be paid irregularly. The decision states, “The key question when determining the legal classification of an employee…is whether an employer made an actual deduction from an employee's base pay. There is no evidence here that Bayada reduced the guaranteed base pay of any of the plaintiffs." None of the employees depleted their PTO through these point deductions, thus the company did not reduce any of the employees' salaries. This decision aligns with the Department of Labor’s position that American workers are not entitled to paid leave.