Use Caution When Reducing Work Hours for Salaried Employees
In response to challenging economic times, a number of employers have announced reduced work hours or “furlough” days. Generally speaking, reducing work hours for hourly employees is a safe and fair way to help control labor costs in difficult times. When dealing with salaried employees who are exempt from state and federal overtime pay requirements, the rules become more complicated.
To qualify an employee as “exempt” from overtime pay, an employer must, among other things, pay the employee on a salary basis. This means that exempt employees are paid a predetermined amount for any given workweek regardless of variations in the actual amount of time spent working in that workweek. Just as the employee will not be given extra pay for working more than 40 hours in a week, the employee will not be docked pay for working less than 40 hours in a week. The one exception is that an employer may choose not to pay any salary for a given week so long as the employee truly did no work that entire week.
When reducing work hours, requiring salaried exempt employees to work one less day per week would not in and of itself permit the employer to reduce the employee’s weekly salary by one-fifth. It is safer to require salaried employees to take mandatory unpaid vacations in increments of one full week. The employer must give strict instructions that the employee not perform work (such as handling emails or voice messages) during that week.
Another alternate would be for the employer to implement an actual salary reduction to correspond with anticipated reductions in hours worked. This is permissible so long as the reduction takes effect for a consistent and foreseeable period of time. The employer may not manipulate the salary from week to week in order to correspond with fluctuating work hours.
The bottom line is that employers should not require salaried exempt employees to take unpaid time off in less than one week increments. If you must make salary reductions, you can do so, but those reductions cannot fluctuate from week to week.
Finally, keep in mind that some employee benefit plans require the employee (whether hourly or salaried) to maintain a minimum number of hours worked per week. Employers must be careful not to disqualify an employee from benefit eligibility inadvertently by reducing the employee’s hours.
Wage and hour laws can be confusing. Do not hesitate to contact a Wright Penning & Beamer attorney if you need additional information or clarification.
Dirk A. Beamer