Employers can use any one of the following three methods:

1. Calculate paid sick time for nonexempt employees in the same manner as the “regular rate of pay” for the workweek in which the employee uses paid sick time, regardless of whether the employee actually works overtime in that workweek;
2. Calculate paid sick time for nonexempt employees 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;” or
3. Calculate paid sick time for exempt employees in the same manner as wages are calculated for other forms of paid leave time.

For information on how the “regular rate of pay” is traditionally defined, see “Regular Rate of Pay Defined” in Calculating Overtime. For information on whether you have to pay an employee for sick leave when they leave employment, see Employee Leaves Employment and Reinstatement.

According to the Labor Commissioner, if you incorporate PSL into a PTO plan you can compensate employees who take PTO for vacation or personal reasons at a “base rate” of pay, whereas time taken as PSL must be paid at the higher “regular rate of pay” described above.

• California Paid Sick Leave: Frequently Asked Questions

Commissioned Employees

The California Division of Labor Standards Enforcement (DLSE) issued an opinion letter regarding calculation of paid sick leave for employees who are paid by commissions and exempt employees who are given an annual, non-discretionary bonus.2

The opinion letter states that employees who are paid by commission must be paid according to options (1) or (2) above — the regular rate of pay or the 90-day look back.

The DLSE also took the position that this applies even if these employees are exempt under the inside sales or outside sales exemption and that the third method of calculation applies only to employees exempt under the professional, executive or administrative exemptions — the so-called white-collar exemptions.

• A recent court decision, however, rejected the DLSE’s opinion, at least as it relates to exempt employees, and clarified that when the statute uses the term “exempt employees,” it means all employees exempt from overtime requirements under any California exemption. It’s not limited only to those exempt under the professional, executive or administrative exemptions. Employers may use the third method of calculation for all exempt employees, including exempt salespeople.3.

Non-Discretionary Bonus

The opinion letter further addresses how to calculate payment of paid sick leave for an exempt employee (executive, administrative and professional exemption) who receives a non-discretionary bonus. The opinion letter states that the non-discretionary bonus is not factored into the payment of paid sick leave. Instead, the employee “would be paid for an amount of pay which equals his or her regular salary for the sick day.”

• Although DLSE opinions are not legally binding, they provide guidance as to how the Labor Commissioner is enforcing the law. Failure to follow the guidance can result in administrative citations. If you have any questions on these issues, consult legal counsel.

1. Lab. Code sec. 246(l)