Trimming exempts’ salaries: The DOL rules
August 13, 2009 by Sam NarisiPosted in: Economy, Law, Special Report
Companies face a lot of staffing decisions in a rough economy — which are often complicated by tough legal questions. For clarification, the Department of Labor (DOL) recently released a fact sheet on legally trimming exempt employees’ salaries and schedules.
Reducing salaries and hours for exempt employees can easily lead to FLSA violations. Here are the DOL’s answers to some of trickiest questions about legal staffing strategies during a slowdown:
1. Can we require exempt employees to take unpaid days off?
Only if it’s for a full week, the DOL says. Exempt employees must be paid for any week in which they perform any work — other than when a full day of pay is deducted because the employee took off for personal reasons.
But when the day off is the employer’s decision, pay can’t be deducted.
2. Can exempt employees volunteer to take time off without pay?
Employers can’t force exempt employees to take unpaid days off — but when it’s 100% voluntary, the DOL counts that as a “day off for personal reasons” and pay can be deducted in full-day increments.
3. Can we require exempt employees to use vacation time?
Yes, companies can deduct from an exempt employee’s leave bank for absences, even when it’s for less than a full day and the absence was mandated by the employer.
The tricky part: Exempt employees need to be paid a full salary in weeks in which they perform any work (except when a full day of pay is deducted when the employee is absent for personal reasons) — which means if someone’s leave bank is empty, pay cannot be deducted.
4. Can we just reduce exempt employees’ regular salary?
Yes — as long as salaries aren’t regularly changed to get around the salary basis requirement. What’s the difference? According to the DOL:
Allowable pay deductions involve “a prospective reduction in the predetermined pay to reflect long-term business needs,” rather than a “short-term, day-to-day or week-to-week deduction” based on how many hours employees work.
August 14th, 2009 at 8:57 am
During a severe downturn in sales the company I work for decided to cut all salaried workers pay by 10%. It was suppose to be until things picked up, then would give our 10% back. It has now been 9 months and things have picked up almost to level they were before the downturn. My question is, is this legal and how long can they do this for?
August 14th, 2009 at 10:58 am
So, what about companies interested in changing those on Exempt w/OT to Non Exempt….?
August 14th, 2009 at 11:39 am
Actually there was a DOL fact sheet that also applied to exempt employees who work in the public sector.
The link is here.
http://www.dol.gov/esa/WHD/flsa/FurloughFAQ.pdf
My question is – I’m I correct in thinking that public sector employees who are exempt only lose their exempt status during the week they have to take a fulough day?
August 14th, 2009 at 12:31 pm
What is an “exempt” employee?
August 14th, 2009 at 12:32 pm
The article does not consider allowable pay deductions/salary reductions for public entities which can occur in less than full-week increments.
August 14th, 2009 at 12:50 pm
A reminder that a PAY CUT is different from a SCHEDULE cut. If you just reduce the workweek by one day, you’ve probably turned everyone into non-exempt employees. If you implement a PAY CUT, then your exempt people are still exempt because you’re not dictating how many days/hours they work.
August 14th, 2009 at 1:48 pm
@Glenn – Wage & Hour Laws (The Fair Labor Standards Act) require overtime for hours worked over 40. However, there are certain classes of employees who “exempt,” from those overtime requirements (See US Department of Labor website). ONE of the requirements for applying the exemption is the payment of a full weekly salary, without docking, except in limited circumstances. A “pay cut” is not docking. A “schedule cut” (accompanied by a reduction of the salary) does constitute docking.
August 14th, 2009 at 2:23 pm
Thanks – new to HR terms.
August 14th, 2009 at 2:25 pm
You’re welcome, Glenn!
August 14th, 2009 at 3:25 pm
Glenn, if you happen to be located in CA, the OT rule is any time worked over 8 hours in any one work day or 40 hours in a work week, whichever comes first. For example, if an employee worked 7 days on Monday and 9 hours on Tuesday, that employee still gets the hour of overtime for Tuesday. You can’t “average out” the hours over the course of the work week.
August 15th, 2009 at 9:53 am
I have an exempt employee who accepted a lesser paying position rather than a layoff. She earned vacation under the higher paid job but is taking it now. At what rate do I pay her?
August 17th, 2009 at 8:42 am
Dallas – Yes it is legal and companies can do it as long as needed. FLSA says employers cannot make cuts on a short term basis to where it appears they are trying to get around the salary basis requirement. The fact that it has been 9 months would tell me your employees would have a hard time proving the company is violating FLSA. It’s not going to be a good move for morale and recruiting could be difficult if word gets out that your company implemented a pay cut and never gave it back, BUT it is legal.
I hope you get it back soon.
August 17th, 2009 at 11:37 am
The question is not whether it is legal, the company’s position is legal as long as they did not arbitrarily cut salaries and as long as they gave reasonable notice that a cut was coming. The issue becomes one of the company keeping it’s word, if you can verify that conditions have improved and therefore a return to previous salary levels is justified you should present this to management and request salaries be returned previous levels. The problems begin when you don’t say anything, as long as you remain silent on the issue then it is assumed that you accept the conditions as they are.
August 17th, 2009 at 12:42 pm
Dallas: Yes, I believe it is legal. Assume you were earning $60,000 per year, and you were offered a position with the same duties and responsibilities for $54,000 per year? Would you take it? Well, if you accepted the 10% pay reduction, that’s exactly what you did. You probably did this to keep your job. Earning 90% of your previous salary is still better than unemployment. If the employer has simply closed, gone out of business, you might have been forced to take a lower-paid position on the open market. Now that things have picked up, you would like to see your salary restored. I don’t blame you. But your employer may have suffered some financial losses it needs to recoup before it can commit to the additional cash flow required to pay employees at their previous salaries. Maybe they decided the current salaries are actually closer to market. You need to evaluate your position and its worth on the open market. If you know you can get an offer from someone else making more than you are making today, you need to weight that option against the long term potential of the prospective employer v. your current employer. If you cannot replace your current position due to lack of opportunities on the open market, you may have to accept the new salary until things really pick up all over. I know this is a very unpleasant reality (I am down nearly 25% myself). However, a steady job, steady paycheck and full benefits are nothing to scoff at right now.
August 17th, 2009 at 2:01 pm
Thanks for your replies KR, Myrna and Staci. The pay cut was arbitrary and efective immediatly without warning. Hopefully we get it back soon as that cut also went for others in the organization. Staci I know how bad 10% is and I am sorry to here that you have even a bigger cut.
Thanks
August 17th, 2009 at 2:26 pm
Jean M.: My experience has been that vacation should be paid out at the rate it was EARNED, but you may want to seek clarification from legal counsel or the DOL.
August 17th, 2009 at 2:57 pm
Paying for vacation, as a benefit and not pay, is typically at the discretion of the employer. Although I’ve always seen payment at the current rate of pay.
August 17th, 2009 at 3:56 pm
More and more states are recognizing vacation pay as part of the “compensation” and not as a benefit – I know for sure that CA falls into this category. If your state is not a use-it-or-lose-it state, I would pay it out at the rate it was earned (were I in your shoes). Receiving the amount an employee feels to be entitled goes a long way in morale and may also discourage a claim with the state’s DOL.
August 20th, 2009 at 2:02 pm
[...] you can violate their exempt status and open your self up to a world of financial and legal hurt. This article and this article offer some guidance that may be of help. You should also make sure there are not [...]
August 28th, 2009 at 8:36 am
Can an employer only take 1 person from 35 exempt employes and reduce there salary only and keep the same job description for that person and change the title. Or does it have to be all inclusive?
September 25th, 2009 at 1:53 pm
I would like to know the answer to Ray’s question as well!