Lt’s define what a company-observed holiday is: Company-observed holidays are "gifts" from the company and no one is entitled to pay for these days except as specified in your employee policies and practices.

1.) If you have always previously paid exempt employees who called in sick the day preceding and/or the day following a company-observed holiday, then you have established a practice precedent by doing this. So pay this manager for the holiday, too.

The key to success is consistency and fair treatment. If you want to stop this practice, make sure that you announce the change to your exempt employee population so that everyone who will be affected understands the change in your pay practices.

2.) If this the first time ever that an exempt employee has called in sick the day before or after a company-observed holiday, you will be setting your practice precedent. So, follow your employee handbook policy.

If the manager was entitled to sick leave pay, pay him for the sick day following the holiday but do not pay him for the holiday. If the manager had consumed all his paid sick time or if you do not offer paid sick time, do not pay him for either day.

An alternative would be to ask him/her if s/he would like the time to be charged to his/her vacation time--again, if you offer some and s/he has the time available to use. The latter is merely a suggestion and is not requisite. It is a courtesy that you might offer to him/her, as well as non-exempt employees in the same situation to promote good employee relations.