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May 21, 2009
Employers Ask: 'Can Exempt Workers' Pay Be Cut?'
Whether the economy is getting worse or simply staying bad is a matter of constant debate. But HR people around the country continue to struggle with how to reduce labor costs without endangering the status of their exempt employees. For example:

Q. “Rather than conducting layoffs, we may be able to restructure by going to 4-day work weeks temporarily, such as for a couple of months. But can exempt employees be part of this? We’d like them to ‘share the pain,’ if we can.”

A. Under the Fair Labor Standards Act (FLSA) employees must be paid at least $455 a week to be classified as exempt. So you can reduce the work week to 32 hours from 40 and exempt employees’ salaries by one-fifth—provided they still earn at least $455 a week. Further, exempt employees’ salaries can’t fluctuate from week to week, but reducing them for 2 months is permissible.

And, the number of hours for which nonexempt employees are paid can be changed at will, so long as each still earns at least minimum wage. But communicating fully about such changes is important, to explain why they must be made and how long management expects them to last. Talking about the company’s plans for staying viable is crucial to employee morale.


And here are two related questions, which were sent to the federal Department of Labor’s Wage and Hour Division (WHD) rather than to BLR’s legal experts. The following are synopses from WHD opinion letters rather than direct quotes:

Q. “We would like to reduce the hours of exempt employees occasionally in response to our short-term business needs. Can we ask people to volunteer to take time off, first-come first-served, and draw on their accrued bank of paid time off? Or, if there aren’t enough volunteers, can we select employees for mandatory time off, based on their seniority? If either volunteers or selected employees chose not to use paid leave, could we reduce their salaries?”

The other question was very similar: a healthcare facility wanted to adjust working hours when it had very few patients. Could exempt employees be sent or asked to stay home under such conditions? All who had accrued paid leave would receive their full salaries, but those who didn’t would not.

A. The opinion letters stressed that FLSA allows employers to reduce an employee’s salary if and when the employee takes time off for personal reasons other than sickness or disability. That is, if an exempt person wants to take off 4 days in a week and work only 1 day, his or her salary can be reduced to one-fifth the normal amount. But the key to such a reduction is that the changed schedule be entirely voluntary on the employee’s part.

WHD said, “The employee’s decision to take voluntary time off, however, must be completely voluntary and not ‘occasioned by the employer or by the operating requirements of the business.’” The division additionally noted that day-to-day or week-to-week fluctuations in employee compensation because of the changing needs of a business “are precisely the circumstances the salary basis [for exemption] is intended to preclude.”

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