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Q&A: PTO Negative Balances, Religious Holidays, Complicated Overtime


Our vacation policy allows employees to “borrow” up to 40 vacation hours before earning them. Employees who leave our employment but have not repaid their hours are deducted those hours on their final paycheck. Is this permissible?


According to an Opinion Letter from the U.S. Wage and Hour Division, Office of Enforcement Policy, employees must be informed in advance of the unearned vacation time policy and that the employer will deduct from their pay the cost of such vacation time if they leave the company prior to earning sufficient vacation time to eliminate the vacation deficit. So long as such notice is in place, the amount of wages advanced as paid vacation time falls into the same category as a bona fide loan or cash advance to which the employee has voluntarily agreed. As such, the employer may deduct the amount advanced for the vacation hours from the employee’s final paycheck, regardless of whether overtime hours were worked in the final week or whether the deduction brings the employee’s pay below the applicable minimum wage.

However, employers may not make any assessment for administrative costs or charge any interest payment that brings the employee below the minimum wage. Moreover, the hourly rate of pay deducted from the final paycheck must be the rate the employee was paid at the time of the advanced paid vacation, rather than a higher rate of pay the employee may earn at the time he or she leaves employment.

Importantly, employers must review state law applicable to their company and employees because there may be state statutes under which such a deduction would not be permitted.



When employers provide employees with time off from work for religious holidays, are employers also required to pay employees during this leave of absence?


Federal law does not require employers to compensate employees for time taken off in observance of a religious holiday, practice, or belief. However, the requirements of the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201, et seq., must be followed. Under the FLSA, an employer is not required to pay nonexempt employees for time off on a holiday, but must pay only for time actually worked. Alternatively, exempt employees who are given the day off must be paid their full weekly salary if they work any hours during the week in which the holiday falls. Employees may be allowed to use accrued paid time off or vacation for their absences due to religious holidays.


Our employees are paid a daily production rate of $13 per hour for anything over 55,000 pounds. If the employee fails to meet the 55,000 pounds quota, then he or she is paid at a base pay rate of $12 per hour. If an employee works Monday through Friday, but more than eight hours per day, do we compensate him on a weighted average for overtime work or do we just continue with the production rate?


Where an employee in a single workweek works at different rates, the regular rate for that week is the weighted average. The weighted average (which is the rate used to determine overtime compensation) is determined by dividing the total hours worked for the work week by the total earnings for the work week (at both rates). The sum is the hourly rate for overtime calculations (1.5 times an employee’s regular rate of pay for all hours worked in excess of 40 per workweek). Importantly, the regular rate of pay cannot be less than the minimum wage.

For example, your employee worked 26 hours at $12 per hour and 17 hours at $13 per hour in one workweek, which would be calculated as follows:

  • 26 hours at $12 per hour = $312 and  17 hours at $13 per hour = $221
  • $312 + $221 = $533
  • $533 ÷ 43 hours worked = $12.39; $12.39 is his regular rate for that workweek
  • $12.39 x .5 = $6.19 overtime half-time pay rate
  • $6.19 x 3 hours of total overtime worked = $18.57
  • $533 + $18.57 = $551.57 is employee’s total wages for the week

About the author, Rhamy

Rhamy grew up watching and working with his mother and grandmother in the seniors insurance market. This familiarity with the struggles faced by people trying to navigate the incredibly complicated and heavily regulated healthcare market led him to start Poplar Financial while working on his degree at the University of Memphis. After completing his MBA and Bachelors in Finance and Economics, Rhamy guided Poplar Financial through the disruptive opportunity that is the Affordable Care Act. Since then Poplar Financial has received numerous awards from major insurance carriers, and has completed its fourth year in a row of doubling in size. Now his team focuses on the processes around human resources, and specializes in providing companies with between 20 and 1000 employees with the payroll, benefits, and HR needs.


  1. ΝΤΕΤΕΚΤΙΒ on 04/10/2018 at 2:25 PM

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    • Rhamy Alejeal on 05/23/2018 at 8:28 AM

      Thank you! Comment anytime!

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