On October 11, 2016, the California Department of Industrial Relations (“Labor Commissioner”) issued an opinion letter clarifying the method of calculation for paid sick leave under Labor Code section 246 (the “Healthy Workplaces, Healthy Families Act of 2014”) for employees paid by commissions and for exempt employees who also receive an annual bonus.  Here is what the Labor Commissioner said:

1. Commissioned Employees.

The amount of paid sick leave (PSL) due to an employee who is paid almost entirely by commissions may be calculated using either method available under Labor Code section 246(k)(1) or (2), which read as follows:

“(1)      Paid sick time for nonexempt employees shall be calculated in the same manner as 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 week.

(2)        Paid sick time for nonexempt employees shall be calculated by dividing 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.”

Thus, the Labor Commissioner has taken the position that for purposes of PSL under the statute, commissioned employees (either outside sales employees, or employees who meet the inside sales exception to overtime requirements) are not exempt and their PSL can be calculated like non-exempt employees under section 246(k)(1) or (2).  To support its position, the Labor Commissioner points to certain legislative history behind the statute that indicates that the language in Labor Code section 246(k)(3) (which governs the calculation of PSL for exempt employees), was meant to apply only to an employee who is exempt under the “administrative,” “executive,” or “professional” exemption.

2. Exempt Employees Who Receive a Non-Discretionary Bonus.

The Labor Commissioner said that normally an exempt employee would be entitled to continue to receive his or her full pay without deduction for a sick day of less than 8 hours, but the day or partial day of sick leave may be deducted from earned or fronted leave balances.   The non-discretionary bonus would not figure into the salary of an exempt employee (in this case, those administrative, executive or professional employees exempt under Labor Code section 515(a)) because such bonuses are only figured into the pay of a non-exempt employee in order to determine the regular rate of pay for overtime and to figure the PSL rate under Labor Code section 246(k)(1)-(2).

So, under Labor Code section 246(k)(3), the PSL for exempt employees is calculated in the same manner as the employer calculates wages for other forms of paid leave time.  For a full-time exempt employee, the annual salary would be divided by 52 weeks and then by 5 days to determine the daily wage that would have been paid for the sick day.

Take Away:  Employers must be sure that they are not only properly granting and tracking accrued sick leave under the Healthy Workplaces, Healthy Families Act, but that they are also properly calculating the compensation due employees when they take a paid sick leave day under the law.