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Federal Appeals Court Holds that Withholding Paid Time Off Will Not Defeat Professional Exemption to Minimum Wage and Overtime Requirements

The Federal Fair Labor Standards Act, like New Jersey’s Wage and Hour Law, requires that employees as a general rule must be paid a specified minimum wage, and overtime when they work more than 40 hours per week.  However, certain classes of employees are exempt from these requirements.  Thus, nonexempt employees need to be paid minimum wage and overtime, while exempt employees do not.  Inus-supreme-court-300x200 order to be considered an exempt employee under the exemption for “professional” employees, an employee must be paid on a “salary basis,” make at least $684 per week, and her work must require advanced knowledge in a field which is normally acquired “by a prolonged course of specialized intellectual instruction; or… requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”

The United States Court of Appeals for the Third Circuit, which hears appeals from the Federal trial courts in New Jersey, Pennsylvania, Delaware, and the United States Virgin Islands, recently examined the professional employee exemption in the case of Stephanie Higgins v. Bayada Home Health Care Inc.


In this case the employee, Stephanie Higgins, was a registered nurse who had worked for Bayada providing medical services in patients’ homes.  She was paid a salary, but her paid time off (PTO) was governed by a productivity formula.  The Court explained how this formula worked.

Higgins, like her co-plaintiffs and all full-time salaried employees, was required to meet a weekly “productivity minimum.”

Bayada health care employees, sometimes called “Clinicians,” are paid a salary but, to meet their productivity minimums, must accumulate a specified number of “productivity points” a week — each point being roughly equivalent to 1.33 hours of work — which are awarded in exchange for completing work tasks. A routine visit to a patient’s home, for example, is assigned one point. If an employee anticipates that she will not meet her productivity minimum, she can make up the deficit by performing office work or additional home visits. Employees can request an increase or decrease in their weekly productivity minimums, corresponding to a commensurate increase or decrease in pay.

When Bayada employees exceed their productivity minimums, they receive additional compensation. On the other hand, if employees fail to meet their weekly productivity minimums, Bayada withdraws from their available PTO to supplement the difference between the points they were expected to earn and what they actually earned. Bayada does not, however, deduct from an employee’s guaranteed base salary when the employee lacks sufficient PTO to cover a productivity point deficit. The only circumstance in which Bayada would reduce an employee’s salary is if the employee voluntarily takes a day off without sufficient PTO.

Bayada and her fellow employees who sued argued that their PTO was part of their salary, and reducing it effectively reduced their pay, meaning that they were no longer salaried employees under the Fair Labor Standards Act and thus not exempt, and therefore they should have been paid overtime when they worked more than 40 hours in a week.

The Third Circuit’s Holding

The Court soundly rejected this argument.  It explained that “We hold, based on the plain meaning of the regulatory language promulgated under the FLSA, that PTO is not part of an employee’s salary.”  Indeed, the Court held that this applied even if the employee able to convert PTO into cash.  Simply put, the Court explained, PTO is a fringe benefit, and deducting from or withholding fringe benefits does not defeat the professional exemption of the Fair Labor Standards Act.

The Takeaways

  • Paid time off is a fringe benefit. Reduction of fringe benefits will not defeat the exemption from overtime and minimum wage for professional employees.
  • While the Third Circuit did not address it, it is likely that the same rationale will apply to other exemptions for salaried executive and administrative employees under the Fair Labor Standards Act.
  • This ruling applies even if the employer allows employees to sell back unused PTO.
  • While reduction of fringe benefits will not cause a professional employee to lose her exemption, some fringe benefits may be governed by union or individual employment contracts or other laws, so there may be a contractual claim, or a statutory claim under another law.
  • New Jersey courts often follow Federal case law when interpreting questions which arise under the New Jersey Wage and Hour Law, so it is likely that the same interpretation will apply to it as well. However, should a New Jersey court arrive at a different conclusion, an employer’s deduction of fringe benefits such as PTO could be legal under the Federal Fair Labor Standards Act, but still violate the New Jersey Wage and Hour Law, subjecting employers to significant liability, as the New Jersey Wage and Hour Law provides for triple damages and payment of the employees’ attorneys fees.

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