May California employers require that exempt employees use paid time off for partial-day absences?

The federal Fair Labor Standards Act (FLSA) allows employers to take partial-day deductions from an employee's leave bank—including paid time off (PTO), sick leave or vacation leave—even if the deduction results in a negative leave balance, without affecting that employee's exempt status. Historically, California law allowed for deductions for partial-day absences from an exempt employee's sick leave without affecting the employee's exempt status. However, because vacation leave is considered wages in California, and under California and federal law partial-day deductions from an exempt employee's salary are not allowed, there was confusion over whether making partial-day deductions from a California employee's vacation leave could affect an employee's exempt status. Various California Division of Labor Standards Enforcement (DLSE) opinion letters and a 2005 court decision created uncertainty about this issue for employers. 

In 2009 the California DLSE issued an opinion letter that provided guidance and more clarity for California employers. The letter states that although an employer may not deduct partial-day absences from an exempt employee's salary, the employer may deduct absences due to vacation or sickness of less than a full day under a bona fide plan (PTO, vacation, etc.) that provides for such types of leave without an employee losing his or her exempt status. If an exempt employee's vacation, PTO or sick leave balances do not cover a partial-day absence, the employee must still be paid his or her full-day salary. 

In 2014 the California Court of Appeal in Rhea v. General Atomics confirmed for employers that deductions from paid time off plans are permitted in any increment as described in the 2009 opinion letter.