Are Employees on Sabbatical Leave Paid? (w/Examples) + FAQs

Sometimes, yes — but usually only when an employer’s written policy, collective bargaining agreement, or employment contract says so. Federal law in the United States does not require any employer to offer sabbatical leave, and it does not require pay when a sabbatical is granted. Whether an employee receives a paycheck, partial stipend, or nothing at all depends on the company’s internal policy, the worker’s classification, and a patchwork of state wage laws.

The issue sits at the crossroads of the Fair Labor Standards Act (FLSA), the Employee Retirement Income Security Act (ERISA), the Family and Medical Leave Act, and state-level wage payment statutes. When an employer promises a paid sabbatical and later refuses to pay, the worker can file a wage claim, sue for breach of contract, or report the employer to the Wage and Hour Division. A 2024 SHRM Employee Benefits Survey found that only 5% of U.S. employers offer paid sabbaticals, while 11% offer unpaid sabbaticals, making this a rare but high-value benefit.

This article walks through federal rules, state nuances, tax treatment, benefit continuation, and real examples so you can decide what applies to your situation.

• 📘 The exact federal and state rules that decide if your sabbatical must be paid.
• 💰 How pay, benefits, and retirement contributions continue (or stop) during leave.
• ⚖️ The legal traps that turn a “paid” sabbatical into a wage claim or lawsuit.
• 🏢 Real company policies from Adobe, McDonald’s, Intel, Epic Systems, and more.
• 📝 A step-by-step checklist to request, negotiate, or draft a sabbatical policy.

What Is a Sabbatical Leave in U.S. Employment Law?

A sabbatical leave is an extended, pre-planned absence from work — usually four weeks to twelve months — that an employer grants after a worker reaches a service milestone. The word comes from the academic tradition of granting professors a paid year off every seventh year for research, a practice still used by most universities under guidelines from the American Association of University Professors. In the private sector, sabbaticals are a retention and burnout-prevention tool, not a legal right.

No federal statute defines the word “sabbatical.” That matters because the term has no fixed meaning under the FLSA, ERISA, or the Internal Revenue Code. Whatever your employer’s handbook says the sabbatical is — paid, unpaid, benefit-continuing, or benefit-pausing — is usually what controls, provided the policy is written clearly and applied consistently. The consequence of a vague policy is that courts will read the ambiguity against the employer under the contra proferentem doctrine, which can force a company to pay out a sabbatical it meant to keep unpaid.

A common misconception is that all sabbaticals are paid. They are not. A 2023 WorldatWork Sabbatical Practices Study showed that roughly 63% of private-sector sabbaticals are fully unpaid, 22% are partially paid, and only 15% are fully paid. The example below shows how definitions shape outcomes.

Example: Maya is a senior engineer at a software company whose handbook says employees with seven years of service “may take a sabbatical.” The handbook does not say “paid.” Maya assumes she will be paid. When her first paycheck fails to arrive, she learns that silence in the policy meant unpaid, and her only recourse is to negotiate a partial stipend going forward.

Sabbatical vs. Vacation, PTO, and FMLA

A sabbatical is longer and rarer than vacation or paid time off, and it is different from statutory leave like FMLA. Vacation and PTO are typically accrued wages under most state wage payment laws, meaning unused balances must be paid out at termination in states like California and Massachusetts. A sabbatical, by contrast, is not “accrued” in the same way — it is a one-time grant tied to tenure — and most states do not treat unused sabbatical time as wages owed at separation.

FMLA leave is unpaid, job-protected, and limited to twelve weeks per year for qualifying medical and family reasons, as set out in 29 U.S.C. § 2612. A sabbatical is not FMLA leave, so it is not federally job-protected unless the employer’s policy promises reinstatement. If an employee takes a sabbatical and the employer eliminates the position, the worker generally has no federal remedy unless the elimination violates Title VII, the ADA, or a contract.

The consequence of confusing these categories is expensive. A worker who assumes FMLA job protection while on a private sabbatical may return to find no job and no legal claim. A misconception people hold is that “paid leave is paid leave,” but each category has its own pay, protection, and benefit rules.

Who Typically Offers Paid Sabbaticals

Paid sabbaticals cluster in three sectors: higher education, technology, and professional services. Universities offer them under faculty handbooks and state public-employee statutes, like the California Education Code § 87767 for community college faculty. Tech companies use them as retention tools: Adobe offers four weeks after five years, Intel offers eight weeks after seven years, and Epic Systems offers a month-long paid sabbatical to long-tenured staff.

Large law firms, consulting firms, and nonprofits sometimes offer paid sabbaticals, often funded by foundations like the Durfee Foundation Sabbatical Program for nonprofit leaders. Unionized workforces — especially public-sector teachers, firefighters, and transit workers — may have paid sabbaticals written into their collective bargaining agreements. Small and mid-size private employers rarely offer paid sabbaticals because of the cash-flow burden.

The consequence of being in a sector without sabbatical culture is simple: you will likely not get one unless you negotiate it into your offer letter. A named example is Priya, a marketing director who negotiated a six-week paid sabbatical into her contract at a 200-person firm, specifying the pay rate, benefit continuation, and return-to-work guarantee — terms the firm would never have offered under its standard handbook.

Does Federal Law Require Sabbaticals to Be Paid?

No. There is no federal statute — no FLSA provision, no ERISA section, no IRS rule — that forces a private employer to offer sabbaticals or to pay workers during one. The FLSA, codified at 29 U.S.C. § 201, only requires minimum wage and overtime for hours actually worked. Time an employee spends not working is not compensable under the FLSA unless a specific exemption or agreement applies.

The plain-English explanation is that the FLSA is a floor, not a ceiling. It does not address long-term leave at all. The consequence of this gap is that sabbatical pay is entirely a matter of private contract, employer policy, or state law. A real-world example involves a sales manager at a mid-size firm who took a 90-day “sabbatical” with no policy in place — the employer later reclassified the leave as unpaid personal time, and the worker had no FLSA claim because he performed no work during the period.

A common misconception is that salaried exempt employees must be paid during a sabbatical because of the FLSA’s “salary basis” rule in 29 C.F.R. § 541.602. The salary-basis rule only requires full salary for any workweek in which the exempt employee performs any work. If the employee performs zero work for a full week, the employer can dock the full week without losing the exemption, so a multi-week sabbatical can be unpaid even for salaried workers.

FLSA Salary Basis and Partial-Week Issues

The FLSA salary-basis rule matters most at the start and end of a sabbatical. If an exempt employee works Monday and Tuesday and then begins a sabbatical Wednesday, the employer must pay the full week’s salary because the employee performed some work. Docking that partial week can destroy the exemption for the whole pay period and potentially for all similarly situated employees, exposing the employer to back overtime under the DOL’s enforcement guidance.

The consequence of a salary-basis violation is steep. The employer can lose the exemption, owe two years of back overtime (three years for willful violations), and face liquidated damages doubling the award. A real-world example is an employer who docked an exempt director for a two-day partial week at the start of a sabbatical, triggering a DOL audit that reclassified twelve directors as non-exempt and generated a six-figure back-pay order.

A misconception is that employers can freely dock any leave day. They cannot dock partial days for exempt workers without risking the exemption, though full-week dockings during unpaid sabbaticals are generally safe if documented.

ERISA, Benefits, and Retirement During Sabbatical

ERISA does not require employers to continue health insurance, 401(k) matching, or other benefits during a sabbatical. The plan document controls. Employers must follow their own written plan terms under 29 U.S.C. § 1104, the ERISA fiduciary duty section, and any deviation can trigger a participant lawsuit and IRS plan-qualification issues.

If the plan treats sabbatical time as “hours of service,” the employee keeps accruing vesting credit and eligibility. If not, the clock pauses. The consequence of misreading plan language is that an employee may return from sabbatical to find vesting frozen, matching contributions skipped, or health coverage lapsed without proper COBRA notice. A named example is Jordan, a software engineer who took a six-month sabbatical believing her 401(k) match would continue; the plan document excluded sabbatical hours, costing her roughly $4,200 in forgone match.

A common misconception is that unpaid leave automatically triggers COBRA. COBRA only triggers when there is a “qualifying event” that causes a loss of coverage, which depends on the employer’s policy. Employers should issue a written notice clarifying whether the sabbatical causes a COBRA event, as required under 26 C.F.R. § 54.4980B.

State Laws That Affect Sabbatical Pay

State wage-payment statutes, vacation-accrual rules, and public-sector sabbatical laws can change the answer dramatically. Some states treat earned leave as wages that cannot be forfeited. Others have specific sabbatical statutes for teachers and public employees. A handful regulate “final pay” in ways that capture unused sabbatical time.

The plain-English takeaway is that your state may either protect or ignore your sabbatical. The consequence of ignoring state law is that an employer following federal-only rules can still lose a wage claim before a state labor board. A real-world example: a New York employer paid out accrued vacation at termination but refused to pay out unused sabbatical credit; the New York Department of Labor ruled the sabbatical credit was a “benefit” under N.Y. Labor Law § 198-c and ordered payment.

A misconception is that a written policy always wins. In states with strong wage-protection laws, the policy must be clear, distributed, and consistent — vague or recently changed policies often lose.

California, Massachusetts, and “Use-It-or-Lose-It” Bans

California bans “use-it-or-lose-it” vacation policies under California Labor Code § 227.3, and the DLSE has applied the rule to any paid leave that functions like vacation. If a California employer calls a benefit a “sabbatical” but structures it like accrued vacation (accrued over time, usable for any purpose), the DLSE can reclassify it and require payout at termination.

The landmark California case, Suastez v. Plastic Dress-Up Co., held that vacation vests as it is earned and is a form of deferred compensation. The consequence for employers is that mislabeling vacation as a sabbatical does not defeat payout obligations. A named example is Carlos, a California tech worker whose employer called a yearly four-week benefit a “recharge sabbatical” — at termination, the DLSE ordered the employer to pay out his unused balance because the benefit was structured like accrued vacation.

Massachusetts follows a similar rule under the Massachusetts Wage Act, which treats earned vacation as wages with treble-damages exposure for nonpayment. A misconception is that naming a benefit a sabbatical insulates it — substance wins over form in both states.

Public-Sector Teacher Sabbatical Statutes

Many states have explicit sabbatical statutes for public school teachers. Massachusetts General Laws c. 71 § 41A allows school committees to grant sabbaticals of up to one year at half pay after seven years of service, on the condition that the teacher returns for at least one additional year. New York Education Law and California Education Code contain similar provisions.

The consequence of failing the return-to-service condition is that the district can recover the sabbatical pay as a debt. A real-world example is a Massachusetts teacher who took a half-pay sabbatical year, resigned immediately on return, and was sued by the district for the full sabbatical salary under the statute’s recoupment clause.

A common misconception is that teacher sabbaticals are automatic. They require a formal application, school committee approval, and a written agreement — missing any of these steps can void the pay.

Final Pay and Accrued Leave Statutes

At least 24 states, including Illinois, Louisiana, and North Carolina, require employers to pay out earned, unused vacation at termination unless a written policy clearly says otherwise. The Illinois Wage Payment and Collection Act is a strong example. Sabbaticals may or may not fall inside that definition depending on how the policy reads.

The consequence of unclear drafting is that an employer who intends a sabbatical to be “use-it-or-lose-it” may end up owing a cash payout. A named example is Anika, a Chicago employee whose handbook said “sabbaticals are forfeited at separation” — the Illinois Department of Labor found the clause enforceable only because it was written, dated, signed, and distributed before she accrued the benefit.

How Paid Sabbaticals Typically Work in Practice

Paid sabbaticals usually run four to twelve weeks, pay full or partial salary, and continue health benefits. Eligibility typically triggers at five, seven, or ten years of continuous service. Most employers require a written request sixty to ninety days in advance and a return-to-work commitment of six to twelve months.

The plain-English mechanic is that the sabbatical acts like a long paid vacation with benefit continuation, but with strings attached. The consequence of breaking the return-to-work commitment is that many policies require repayment of the sabbatical salary on a pro-rata basis, much like a signing-bonus clawback.

A misconception is that sabbatical pay is “extra” compensation. It is usually treated as regular W-2 wages, fully taxable, subject to FICA, and reported on the employee’s normal payroll — the IRS Publication 15 treats it as ordinary wages.

Three Common Scenarios

Stipend vs. Full Pay Structures

Some employers pay full salary, others pay a stipend (often 40%-60% of base pay), and a few pay nothing but cover benefits only. Academic institutions often use the “half-pay for a full year or full-pay for a half year” structure, codified in faculty handbooks and union contracts.

The consequence of choosing a stipend model is that the employer reduces cash burn but may face retention problems if the stipend is too low. A named example is Dr. Elena Rossi, a tenured professor who chose a full-year half-pay sabbatical to write a book, supplementing her income with a Guggenheim Fellowship — a common pairing in academia.

A misconception is that the stipend is taxed at a lower rate. It is not; stipends paid to employees are wages under IRC § 3401 and are taxed at the same rates as regular salary.

Tax Treatment of Sabbatical Pay

Sabbatical pay is ordinary W-2 wages. It is subject to federal income tax withholding, Social Security, Medicare, and applicable state income taxes. The IRS treats it as compensation for services because the employer-employee relationship continues during the leave.

The plain-English rule is that a paycheck is a paycheck. The consequence of mischaracterizing sabbatical pay as a “gift” or “scholarship” is that the employer can face payroll-tax penalties and the employee can face back-tax liability. A real-world example is an employer who paid a $25,000 sabbatical “grant” without withholding, later assessed penalties under IRC § 6672.

A common misconception is that traveling abroad during a sabbatical changes the tax treatment. It usually does not — the wages remain U.S.-source if the employee remains a U.S. resident and the employer is U.S.-based, though the foreign earned income exclusion may apply in rare cases.

Qualified Educational Sabbaticals

Faculty sabbaticals used for research or study are generally taxable wages, not tax-free scholarships, because the employer receives a benefit (the research output or continued employment). IRC § 117 limits the scholarship exclusion to degree candidates, which most tenured faculty are not.

The consequence of assuming a sabbatical is tax-free is an unexpected April tax bill. A named example is Professor Marcus Chen, who assumed his sabbatical pay qualified as a scholarship; the IRS reclassified the entire amount as wages, added underpayment interest, and imposed an accuracy-related penalty under IRC § 6662.

A misconception is that reimbursed travel during sabbatical is non-taxable. Business-connected travel may be excludable under accountable-plan rules in Treas. Reg. § 1.62-2, but personal travel reimbursed by the employer is taxable wages.

Drafting or Negotiating a Sabbatical Policy

Employers should draft sabbatical policies with the precision of a contract. Employees should read them with the eye of a lawyer. The written document controls almost every outcome — pay, benefits, duration, return rights, and payback obligations.

The plain-English point is that clarity beats generosity. The consequence of a vague policy is litigation, mediation, or a morale hit. A named example is Green Valley Foods, which rolled out a vague “six-week refresh” policy; within two years, three wage claims and one wrongful-termination suit had been filed, all traceable to ambiguous language.

Key Clauses Every Policy Needs

Every sabbatical policy should specify eligibility, length, pay, benefit continuation, application process, return commitment, payback terms, and the effect of policy changes. It should identify whether the policy is a contractual promise or an at-will benefit the employer can revoke. Courts in states like Pennsylvania and New Jersey have enforced handbook sabbatical promises as contracts when the language was sufficiently definite.

The consequence of omitting a disclaimer is that the handbook becomes a binding contract under the implied-contract doctrine recognized in cases like Woolley v. Hoffmann-La Roche. A real-world example is a New Jersey firm whose handbook promised “all employees with 10 years of service will receive a paid sabbatical”; the firm tried to revoke the promise and lost a breach-of-contract suit.

A misconception is that a verbal promise is enough. It is not — most wage and contract claims require written proof, and employers routinely deny verbal promises.

Mistakes to Avoid

1. Assuming federal law requires sabbatical pay. It does not; only contracts and state laws create the duty, and relying on FLSA protection leaves you with no claim.
2. Docking a partial workweek for an exempt employee starting or ending sabbatical. This can destroy the FLSA exemption and expose the employer to years of back overtime.
3. Failing to issue COBRA notice when coverage lapses. Missing the 14-day notice deadline in 29 C.F.R. § 2590.606-4 triggers excise taxes and private lawsuits.
4. Labeling accrued vacation as a sabbatical to avoid payout. California and Massachusetts courts look at substance over form and order payout anyway.
5. Omitting a payback clause for early return or resignation. Without a written clawback, the employer cannot recover sabbatical pay when an employee quits on return.
6. Using a verbal sabbatical promise. Verbal promises rarely survive a wage dispute and leave both sides exposed.
7. Ignoring ERISA plan terms on “hours of service.” Vesting and matching errors can trigger a plan-qualification issue and a fiduciary-breach claim.
8. Failing to update the policy after a merger or acquisition. Old sabbatical promises can be assumed by the new entity unintentionally, creating surprise liabilities.
9. Classifying sabbatical pay as a non-wage grant. The IRS will reclassify it, and penalties under IRC § 6672 can reach 100% of unpaid trust-fund taxes.
10. Applying the policy inconsistently. Selective enforcement creates Title VII and ADEA discrimination exposure.

Do’s and Don’ts for Employers

• Do put the sabbatical policy in writing and distribute it with every handbook update, because undocumented benefits cause the most disputes.
• Do specify tax treatment, benefit continuation, and payback terms, because silence is read against the drafter.
• Do apply the policy consistently across race, age, sex, and disability, because selective grants invite EEOC charges.
• Do coordinate with your ERISA plan administrator before approving leave, because plan language controls vesting and matching.
• Do document the return-to-work date in writing, because oral return dates are the top source of reinstatement disputes.
• Don’t promise reinstatement to the “same or equivalent” position unless you mean it, because that phrase carries FMLA-style legal weight.
• Don’t dock partial weeks for exempt employees, because the salary-basis rule can vaporize the exemption.
• Don’t forget state final-pay laws, because unused sabbatical balances may be wages in 24 states.
• Don’t label vacation as sabbatical to dodge payouts, because DLSE and state labor boards will reclassify.
• Don’t change the policy retroactively, because accrued benefits vest and cannot be stripped without consideration.

Pros and Cons of Paid Sabbaticals

• Pro — Retention. Long-tenure employees cite paid sabbaticals as a top reason to stay, reducing replacement costs that average 33% of annual salary per the SHRM Cost-Per-Hire benchmark.
• Pro — Burnout prevention. Extended rest improves mental health and productivity, supported by research from the American Psychological Association.
• Pro — Recruitment edge. Offering a sabbatical differentiates small employers from large ones in tight labor markets.
• Pro — Knowledge transfer. A planned absence forces cross-training, which reduces single-point-of-failure risk.
• Pro — Tax deductibility. Sabbatical wages are ordinary and necessary business expenses under IRC § 162, fully deductible.
• Con — Cash flow. Paying a full salary for a non-working employee strains budgets, especially for small firms.
• Con — Coverage gap. Work must be redistributed, often creating overtime costs for non-exempt coworkers.
• Con — Inequity perceptions. Employees not yet eligible may feel excluded, hurting morale.
• Con — Legal drafting burden. A poorly drafted policy invites wage claims, ERISA claims, and discrimination complaints.
• Con — Return-to-work risk. Some workers use the sabbatical to interview elsewhere and resign on return, triggering clawback disputes.

Real Company Examples

Adobe Systems offers a four-week paid sabbatical after five years, six weeks after ten years, and eight weeks after fifteen years. The policy is written, applied company-wide, and includes benefit continuation. Adobe’s public materials describe it as a retention and recharge benefit.

Intel Corporation offers an eight-week paid sabbatical every seven years for U.S. employees, one of the longest-running corporate programs. Epic Systems offers a paid month-long sabbatical for employees reaching their fifth anniversary and includes a travel stipend.

McDonald’s Corporation has historically offered an eight-week paid sabbatical after ten years for corporate staff. The Durfee Foundation funds three-month paid sabbaticals for Los Angeles nonprofit leaders, directly paying the sabbatical salary so the nonprofit does not bear the cost.

Named Employee Scenarios

Scenario 1 — Priya, Senior Marketing Director. Priya negotiated a written six-week paid sabbatical into her offer letter at a 200-person firm. The clause specified full salary, benefit continuation, a 90-day notice, and a six-month return commitment. She took the leave after three years and returned to a promotion.

Scenario 2 — Jordan, Software Engineer. Jordan took a six-month unpaid sabbatical believing her 401(k) match would continue. The plan document excluded sabbatical hours, she lost $4,200 in matching, and the employer was found to have followed the plan correctly — the lesson is to read the plan, not the handbook.

Scenario 3 — Dr. Elena Rossi, Tenured Professor. Elena chose a full-year half-pay academic sabbatical and added a Guggenheim Fellowship to fund her book. Her university treated the half-pay as ordinary wages, withheld taxes, and continued her TIAA retirement contributions at the reduced rate.

Legal Precedents and Agency Rulings

Courts have repeatedly enforced clear written sabbatical policies and struck down vague ones. In Woolley v. Hoffmann-La Roche, the New Jersey Supreme Court held that employee handbooks can form binding contracts when language is definite. The DOL Wage and Hour Opinion Letters have addressed partial-week docking during leave, consistently finding that docking partial days for exempt employees violates the salary-basis rule.

The consequence for employers is that sabbatical policies are litigated under contract, ERISA, and wage-and-hour theories simultaneously. A real-world example is a federal case where a technology company lost a class action after docking partial weeks for sabbatical start dates — the court ordered reclassification of 40 exempt workers and two years of back overtime.

A misconception is that agency opinion letters are not binding. They are not formal regulations, but courts give them substantial Skidmore deference and employers ignore them at their peril.

How to Request a Sabbatical

Start by reading the employee handbook and any addenda for the exact eligibility and process rules. Confirm in writing with HR that you meet the service requirement. Submit a written request at least 60 to 90 days ahead, including proposed dates, coverage plan, return commitment, and any training you will do before leaving.

The consequence of a sloppy request is denial or delay. A named example is Kenji, an account manager who submitted a vague three-line email asking for “a few months off”; HR denied the request as non-compliant with the policy’s 90-day written-notice rule, and Kenji had to wait another full year to reapply.

A common misconception is that managers can grant a sabbatical on their own. Most policies require HR, legal, and finance sign-off — a manager’s “yes” is not binding until the written approval arrives.

FAQs

Are sabbaticals required to be paid under federal law?

No. Federal law does not require any sabbatical, paid or unpaid. Pay depends entirely on the employer’s written policy, an employment contract, or a collective bargaining agreement.

Can an employer revoke a paid sabbatical after approving it?

No. Once approved in writing with a start date, most states treat the promise as an enforceable contract, and revoking it without cause can trigger breach-of-contract damages.

Do I still accrue vacation during a paid sabbatical?

Yes. Most policies treat paid sabbatical time as active service, so vacation and PTO continue to accrue unless the written plan says otherwise.

Is sabbatical pay taxable?

Yes. The IRS treats sabbatical pay as ordinary W-2 wages, subject to income tax withholding, Social Security, and Medicare at the same rates as regular salary.

Does COBRA apply during an unpaid sabbatical?

Yes. COBRA applies when coverage actually lapses because of reduced hours, so unpaid sabbaticals that cause loss of coverage trigger COBRA notice rights.

Can my employer require repayment if I quit after a paid sabbatical?

Yes. If the policy includes a written clawback clause with a clear repayment schedule, most states enforce it like a signing-bonus repayment agreement.

Do salaried exempt workers have to be paid during a sabbatical?

No. The FLSA salary-basis rule only applies to workweeks in which the exempt employee performs work; a full unpaid week with zero work is allowed.

Are teacher sabbaticals always paid?

Yes. In most states with teacher sabbatical statutes, the leave is paid at full or half salary, but only if the teacher meets service and return-to-work conditions.

Can I take FMLA leave during a sabbatical?

Yes. FMLA runs concurrently with any paid leave if the qualifying event occurs, so a sabbatical can overlap with FMLA job protection and benefit continuation.

Does taking a sabbatical affect my 401(k) vesting?

No. Generally it does not if the plan counts sabbatical hours as service, but it can freeze vesting if the plan document excludes unpaid leave hours.

Is a sabbatical protected like military leave under USERRA?

No. Sabbaticals are not federally protected leaves; only USERRA, FMLA, and ADA accommodation leave carry statutory reinstatement rights.

Can my employer reduce my pay when I return from sabbatical?

No. Unilateral pay cuts on return usually breach the policy’s reinstatement clause, and in unionized settings can violate the collective bargaining agreement.

Are sabbaticals counted as hours worked for overtime?

No. Sabbatical hours are not “hours worked” under the FLSA, so they do not count toward the 40-hour overtime threshold for non-exempt employees.

Do I have to disclose what I do during my sabbatical?

No. Most policies do not require disclosure, though some academic sabbaticals require a written report, and any outside employment may trigger conflict-of-interest rules.

Can a small business deduct sabbatical pay as a business expense?

Yes. Sabbatical wages are ordinary and necessary compensation expenses under IRC § 162 and are fully deductible in the year paid, just like regular salary.