Calculating Paid Sick Leave for Commissioned and Exempt Employees

Calculating Paid Sick Leave for Commissioned and Exempt Employees

by Justin R. Rediger, Esq.

The Healthy Workplaces, Healthy Families Act of 2014 (California’s Paid Sick Leave Law) became effective on July 1, 2015, and requires employers to provide three workdays or 24 hours of paid sick leave per year to each of its employees (with certain conditions and limited exceptions). On October 11, 2016, the California Department of Industrial Relations, Division of Labor Standards Enforcement (“DLSE”) issued an opinion letter regarding the methods employers may use to calculate the rate of pay for sick leave taken by employees who are normally paid by commissions, and by exempt employees who receive non-discretionary annual bonuses.

An employer may use either of the two following methods to determine the rate of pay for sick leave for an employee who is paid entirely, or “almost entirely,” by commissions: 1) calculate the regular rate of pay for the workweek in which the employee uses paid sick time, or 2) calculate the total non-overtime earnings for the prior 90 days divided by the total hours worked for the prior 90 days. (See Labor Code section 246, subdivision (k)(1) and (2)). An employer may use either of these  methods to determine the rate of pay for sick leave regardless of whether the employee might otherwise satisfy the outside sales exemption and/or the overtime exemption for commissioned salespersons permitted by the Labor Code and Wage Orders.

For those employees who are “exempt” as administrative, executive, or professional employees under the Labor Code and Wage Orders, the employer must calculate sick time “in the same manner as the employer calculates wages for other forms of paid leave time.” (See Labor Code section 246, subdivision (k)(3)). The amount of any non-discretionary bonus does not figure into the salary of such an exempt employee; the employee would be paid in the amount of his or her regular salary for a paid sick day.

The DLSE opinion letter provides guidance to employers on how the agency charged with enforcing the Paid Sick Leave Law will interpret and apply one of the several ambiguous provisions of the law.

Employers in California should have their paid sick leave policy reviewed to ensure that such complies with the state statute and with any applicable city ordinances regarding paid sick leave that might provide even greater benefits or protections to employees. A sick leave policy that fails to comply with the law could provide the basis for a class action wage and hour lawsuit alleging that the employer’s unlawful sick leave policy adversely affects all of the employer’s employees.

See also: Paid Sick Leave for Employees Employed on New Contracts with the Federal Government