Paid time off is a fringe benefit and is not considered part of a worker’s salary ruled a federal appeals court on March 15, 2023. In a case brought by employees (nurses, physical therapists and social workers) at Bayada Home Health Care, the judges concluded that the company can take away paid leave when salaried workers do not meet productivity quotas. The Philadelphia-based 3rd U.S. Circuit Court of Appeals unanimously ruled that Bayada Home Health Care Inc did not violate federal wage law by docking salaried employees’ paid time off, or PTO, when they did not work required weekly hours. This was the first time that an appellate court ruled on whether docking PTO from salaried employees causes them to lose their exemption from overtime.

While a salary is a fixed amount of compensation paid out at regular intervals, paid time off is a fringe benefit that has no effect on a worker’s wages and can be paid irregularly, such as when an employee leaves a company. The court did not agree with the employees’ argument that deducting PTO when they did not reach a weekly productivity quota, meant that they were paid based on how much they worked and were not salaried employees exempt from overtime pay under the federal Fair Labor Standards Act. This decision affirmed a federal judge’s 2021 ruling for the company. (Higgins v. Bayada Home Health Care Inc., No. 21-3286 (3d Cir., March 15, 2023).

As a refresher, employees can be exempt from overtime if they have exempt duties and are paid on a salary basis. Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Read more about the Salary Basis rules.