CaliforniaAs if paid sick leave wasn’t scary enough!  From accrual methods, to the protections provided to the time off, to the varying (and ever growing) laws in different jurisdictions, paid sick leave can be spooky.  What about how to calculate the rate of pay for the paid sick leave??  On October 11, 2016, the California Department of Industrial Relations, Division of Labor Standards Enforcement (“DLSE”) issued an opinion letter regarding its interpretation under California’s Healthy Workplace Health Families Act of 2014 (the “California Paid Sick Leave Law”) of the method of calculation of paid sick leave for employees paid by commissions and exempt employees who are given an annual, non-discretionary bonus.

As discussed in our July 13, 2015 article, the California legislature amended the California Paid Sick Leave Law to address, amongst other topics, the calculation of the rate of pay for sick leave.  In the Amendment, the legislature provided the following clarification regarding calculation of the rate of pay of sick time:

  • Non-exempt employees. The Amendment required an employer to calculate paid sick time for non-exempt employees using one of the following methods: (1) calculate the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek; OR (2) divide the employee’s 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.
  • Exempt employees. The Amendment required that paid sick time for “exempt employees” be calculated in the same manner as the employer calculates wages for other forms of paid leave time. This provision of the Amendment did not limit the categories of exempt employees which this calculation method applied to.

Now the DLSE has issued an opinion letter further interpreting these provisions.

How Should Employers Calculate Paid Sick Leave for Employees Only Receiving Commissions?

According to the DLSE’s opinion letter, employers must calculate paid sick leave payments for employees “who are almost entirely paid by commissions” as if they are non-exempt employees under the Amendment.  This opinion letter takes the position that only those employees exempt under one of the white collar exemptions (professional, executive, or administrative exemptions) may be paid their sick leave as an “exempt employee” under the Amendment.  The DLSE’s opinion letter maintains that employees classified as exempt under the outside or inside sales exemptions are not deemed to be “exempt” for purposes of the Amendment’s calculation of the rate of pay for sick leave.

How Should Employers Calculate Paid Sick Leave for Exempt Employees Who Receive an Annual Bonus?

The DLSE’s opinion letter then addressed how an employer calculates paid sick leave for an exempt employee under the white collar exemptions and who also receives a non-discretionary annual bonus at the end of each year.  The DLSE reasoned that a non-discretionary bonus does not figure into the salary of an exempt employee, and that under the Amendment, the employee would be paid an amount of pay equal to his or her regular salary for the sick day.

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Photo of Susan E. Groff Susan E. Groff

Susan E. Groff is a principal in the Los Angeles office of Jackson Lewis P.C. She is co-leader of the firm’s California Advice and Counsel resource group. The group delivers legal and practical guidance to assist employers in navigating what are frequently multi-disciplinary…

Susan E. Groff is a principal in the Los Angeles office of Jackson Lewis P.C. She is co-leader of the firm’s California Advice and Counsel resource group. The group delivers legal and practical guidance to assist employers in navigating what are frequently multi-disciplinary issues.

Susan counsels management on a host of labor and employment issues, including wage and hour laws, disability and leave management, harassment and discrimination complaints, workplace investigations, reductions in force, litigation avoidance, and discipline and termination questions.

Due to California’s nuanced and numerous disability and leave requirements, Susan dedicates much of her practice to advising employers on federal and California requirements for disability accommodation and protected leaves of absence. Importantly, she partners with employers not only on these technical disability and leave laws, but also on practical solutions in handling the same.

Susan also provides guidance to employers on California’s challenging wage and hour laws. In addition to day to day advice, she assists with employer audits, compensation plan reviews, and policies in this area.