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March 30, 2009
Tough Economic Times Raise FLSA Questions for Employers

The Department of Labor recently answered an employer's question about whether an organization can require exempt employees to stay home or leave work early during periods of insufficient work and deduct the non-work time from the employees' accrued paid time-off (PTO) accounts without jeopardizing their exempt status. The department also addressed situations in which employees have exhausted all of their PTO.

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In an opinion letter (FLSA2009-18), the department addressed an employer's plan to adjust staffing when business is slow. Under the plan, the employer would give employees their regular salaries when the employer requires them to stay home or leave work early, as long as they have sufficient hours in their PTO accounts to cover the non-work periods. However, if an employee's accrued PTO is exhausted, the employer will reduce the employee's salary in full-day increments.

Under the Fair Labor Standards Act, exempt employees must receive their full salary for any week in which they perform any work, without regard to the number of days or hours worked.

The department said “an employer can substitute or reduce an exempt employee's accrued leave for the time an employee is absent from work, even if it is less than a full day and even if the absence is directed by the employer because of lack of work, without affecting the salary basis of payment, provided that the employee still receives in payment an amount equal to the employee's guaranteed salary.”

In other words, employers can make such substitutions because employees' pay remains the same. The only change these employees will see is a reduction in the amount of accrued leave they have available.

The department notes that “if an employer requires that an exempt employee work less than a full workweek, the employer must pay the employee's full salary even if:  (1) the employer does not have a bona-fide benefits plan; (2) the employee has no accrued benefits in the leave bank; (3) the employee has limited accrued leave benefits, and reducing that accrued leave will result in a negative balance; or (4) the employee already has a negative balance in the accrued leave bank.”

The department then addressed the employer's plan to reduce the pay of employees who are required to stay home for a lack of business and who have exhausted all of their accrued PTO. The department said such a scenario could jeopardize employees' exempt status, noting that the employer said the employer would require employees to take the day off “during occasional unplanned and transitory periods” when business is slow. The department said that deductions from salary due to short-term business needs would be a violation of the FLSA's salary-basis test.

In a separate opinion letter (FLSA2009-14) addressing a similar question from another employer, the department distinguishes between a reduction in salary for short-term business needs and a reduction in salary corresponding to a reduction in hours in the normal scheduled workweek.

The department said “a reduction in salary corresponding to a reduction in hours in the normal scheduled workweek is permissible if it is a bona fide reduction not designed to circumvent the salary-basis requirement, and does not bring the salary below the applicable minimum salary. Unlike a salary reduction that reflects a reduction in the normal scheduled work week and is not designed to circumvent the salary-basis requirement, deductions from salary due to day-to-day or week-to-week determinations of the operating requirements of the business are precisely the circumstances the salary basis requirement is intended to preclude.”

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