The U.S. Department of Labor takes the position that under the Fair Labor Standards Act, paid out vacation time does not become part of the regular rate, but paid out sick time does. Under 29 C.F.R. 778.219(a), if an employee “is entitled to a certain sum as holiday or vacation pay, whether he works or not, and receives pay at his customary rate (or higher) in addition for each hour that he works on the holiday or vacation day, the certain sum allocable to holiday or vacation pay is still to be excluded from the regular rate.” Despite this regulation applying to vacation and holiday time buy-back pay, the USDOL takes an opposite view regarding sick leave buy-backs. In 2009, the USDOL released an opinion letter explaining that it viewed sick time buy-back pay as a non-discretionary bonus because of its link to attendance. According to the USDOL, sick leave buy-backs encourage employees “not to use or abuse sick leave, resulting in reduced absenteeism.” Therefore, like attendance bonuses, sick leave buy-back pay must be treated as a non-discretionary bonus and must be included in the regular rate.
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