In a win for employers, on March 15, 2023, the U.S. Court of Appeals for the Third Circuit held that paid time off (PTO) does not constitute salary for purposes of the Fair Labor Standards Act (FLSA). The decision in Higgins et al. v. Bayada Home Health Care Inc. involved an issue of first impression for the federal appellate court and provides employers with some assurance that, at least under federal law, PTO deductions for salaried, exempt employees generally will not require that such employees be reclassified and entitled to overtime.
Stephanie Higgins was a registered nurse for Bayada, which provides medical and related support services for patients in their homes. Higgins was a full-time, salaried employee classified as exempt from the FLSA overtime rules, meaning she did not earn overtime for hours worked in excess of 40 hours per workweek. In addition to job-duty requirements, the FLSA requires exempt employees be paid on a salary basis, meaning the “employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” Currently, the minimum predetermined amount that an employee must receive is $684 per week.
Higgins claimed that Bayada’s PTO policy ran afoul of the “salary basis” test, and that, as a result, she had been misclassified and should be entitled to...
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