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Jan13

Reduction in salary employees

Compensation
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I need to write a letter to inform all salaried employees that we will cut everyone to a 4 day a work week. They will only work 8 hours a day, so we will only pay them for 32 hours. They can choose their day off as long as we don’t have key people taking the same day off. We truly need to reduce our payroll but keep the business open 5 days a week. Are we setting up ourselves for any potenial lawsuits. How do I write the letter?

Okay, lets put on the brakes here. If these are salaried exempt employees, you certainly can reduce their work week to 4 days instead of 5 days. But, you will still be legally responsible for paying the employees their entire weekly (5 day) salary, under the FLSA or federal Fair Labor Standards Act. Any attempt to tie the number of hours worked to their compensation, will make these employees non-exempt. You will instantly be obligated to pay them time-and-a-half for any overtime worked in the past 3 years, and any overtime worked in the future.

Under the FLSA, when an exempt employee is ready, willing and able to work, and no work is available, you must pay that employee. That is the situation here, if you go to 4 days per week. The employee must be paid for working 5 days per week.

If these are exempt employees, almost the only ways to reduce your payroll costs are: a) Lay off one or more exempt employees and/or b) reduce the hours worked by hourly employees, requiring exempt employees to take up the slack.

Assuming that these are salaried non-exempt or hourly employees, these would be our suggestions: For non-exempt or hourly employees it is perfectly legal to reduce the employees workweek to 8 hours, 4 days per week and pay them for only 32 hours per week. We have a few suggestions about how you can best handle this. Being an employer sometimes means taking the bull by the horns and telling people something they do not want to hear. This is one of those situations.

You may want to issue a memo rather than write a letter — to many people a letter implies two-way communication. It implies that you are making a suggestion. You are not. You are implementing a new company policy. As an employer, you have the right to do so without input from employees.

You might want to word it like this: Due to financial considerations, XYZ Corp [your company name] will implement a standard four day, 32 hour work week, beginning on [date.] Each employee is expected to work four 8-hours shifts. Employees who work more than 32 hours per week are subject to discipline, up to and including termination.

Our suggestion is that you determine which weekday each employee will take off each week, based on business needs. Unless you are absolutely positive your employees can resolve this amiably themselves, with adequate management coverage on each day, you do not want to leave this up to chance. (The employees have no motivation to make this work. They may think that if it does not work, you will go back to paying everyone for 40 hours each week.) You should also request that employees furnish you with a written schedule of who will work on which day.

The only part of your post that is problematic is “we will only pay them for 32 hours.” Well, no. You can discipline or terminate an employee who works more than 32 hours without permission. But under the law, you must pay hourly or non-exempt workers for every hour they work. If Amy works 34 hours one week, even without permission, you must pay her for them. You can discipline her or even terminate her for working excess hours without approval, but she must be paid for the hours she actually worked under various state laws, and the federal FLSA.

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This entry was posted on Tuesday, January 13th, 2009 at 9:25 am and is filed under
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8 Responses to “Reduction in salary employees”

  1. CA Worker Says:
    February 23rd, 2009 at 8:49 pm

    In the state of CA I was told that a company can reduce the standard work day of an exempt employee from 5 days a week to 4 days a week and only if their salary goes under 33,280 that they would be now considered a non-exempt employee. Is it all in the way the message is given to an exempt employee. Do you not tie the reduction of the work day into hours work? You basically state that the standard work week will be 4 days instead of 5 days. Please help me understand this.
    Please do not post my name
    Thank you

  2. Caitlin Says:
    February 24th, 2009 at 5:14 pm

    Hi CA Worker! An employer in California or any state can reduce an exempt employees salary, as long as that change is permanent and is not directly related to a reduction in hours. In other words, the employer cannot say “I’m paying you less this month, because you are working fewer hours this month.” However, the employer can say, “All salaried employees will have a 20% decrease in salary permanently.” Any indication that the change is temporary or based on the number of hours worked, can change the employees exempt status to non-exempt.
    Ideally, this permanent salary reduction would remain in effect for at least 3 months and would involve a number of exempt employees, or all exempt employees, not just one or two.
    Reducing hours at the same time is a grey area. In some areas, the courts have found that the employer can change the number of hours when implementing a permanent salary reduction for exempt employees. In other areas, the federal courts have found that any change in the number of hours will result in the employees becomming non-exempt. So employers need to either be familiar with the court decisions in their area, or not change the number of hours.
    There is also a minimum salary requirement to be an exempt employee, in many states and under federal law. HTH, and thanks for reading the blogs!~ Caitlin

  3. Worker in Michigan Says:
    May 4th, 2009 at 4:21 pm

    On April 10, 2009, I was informed by the owners of the company that I work for that, effective immediately, they were going to reduce both my salary and the hours worked by 20% due to economic difficulties. They claimed that since I had not taken any pay cut because of the change in our insurance benefits (I opted out of taking the company’s health insurance and was paid a $50 waiver per paycheck), that it was my turn to make a sacrifice. I have worked for this company for over 17 years and there is only 1 person with seniority over me. I have been salaried since the first day of my employment. My employers specifically told me that the one employee who has seniority over me would have to take a pay cut because she was going to now have to pay insurance for her family (She actually opted to drop coverage on her family because she could not afford the decrease in pay). I was also told that instead of making an across the board cut, that they looked at individual circumstances. There was one other long-term employee was forced to take a 50% cut and one employee (employed for 1 year) who volunteered to take a 5% pay cut. No other employees were forced to make this type of change in hours and salary. We did lay-off 5 people in the middle of January. Do I have any legal options under the FSLA?

  4. Caitlin Says:
    May 4th, 2009 at 4:47 pm

    Hi Worker in Michigan! If we understand correctly, the employer is selectively imposing pay cuts of up to 50% on employees based on their personal circumstances (i.e., do they support a family, are they using the company’s health insurance, etc.) Obviously, that is not fair and a poor business practice. Ideally, the employer would impose pay cuts on everyone, or use objective work criteria. Although the employer is probably trying to be compassionate, they are basically setting themselves up to judge employee’s lifestyles. And, the employer cannot know all the relevant facts about each employee’s circumstances.
    So obviously this is a bad idea. But it is not necessarily illegal. Under federal law, it would be illegal if the employer was basing these salary decisions on the employees sex, race, color, religion, pregnancy, disability, or age (between 40 and 70). It is illegal to discriminate against employees based on those factors. In addition, Michigan law outlaws discrimination based on weight, height, marital status, or arrest record.It is legal to discriminate against employees based on other factors (although it is very unprofessional to do so.)
    Suppose John and Mary both have the same job. The employer decides to give Mary a pay cut, because both she and her husband work. They decide to leave John at his current salary, because he is the “family breadwinner.” This would likely be illegal discrimination based on sex. If John were Chinese and Mary were African American, that might very well be discrimination based on race or color.
    Ideally, business decisions such as this would be based on clear-cut, objective criteria and would be documented in detail. There is no requirement that the employers base these decisions on seniority.
    If you believe that you are the target of illegal discrimination, contrac the EEOC at http://www.eeoc.gov or the state of Michigan at http://www.michigan.gov/mdcr.
    You can also try to file a complaint about having your wages and hours reduced as an exempt employee, although as long as the reduction is permanent, it is probably lawful. HTH, and thanks for reading the blogs!~ Caitlin

  5. Worker in Michigan Says:
    May 5th, 2009 at 9:09 am

    Thanks Caitlin for that information. Now I need to clarify, when I was told about this change in my salary, I was told that it was temporary. So by my employers saying that it is temporary, it changes me to a non-exempt status and I may go after them for any time that I have worked in excess of my regularly scheduled hours. Is this correct and is there any other option that I may have here?

  6. Caitlin Says:
    May 5th, 2009 at 3:30 pm

    Hi again, worker! Yes,under the federal FLSA regulations, when an employer temporarily reduces the employees work hours and wages, the employee is no longer exempt. It certainly creates the appearance that the employee never was exempt, and is being paid based on the quantity or quality of work.In many cases, the employee can then file a claim with the U.S. (or state) department of labor and is entitled to overtime pay for the past 3 years.

    Read more about this at: http://www.dol.gov/esa/whd/regs/compliance/fairpay/fs17g_salary.pdf

  7. Marcia Mason Says:
    July 11th, 2010 at 11:45 am

    Is it illegal to reduce the hourly wage of a non-exempt employee but not reduce his/her hours worked? I need to do this but need the business to stay open 5 days a week. Thank you!

  8. Caitlin Says:
    July 11th, 2010 at 5:38 pm

    Hi Marcia! It is legal for an employer to reduce the wage of an hourly employee as long as that wage is still above the minimum wage. There is no requirement that the employer reduce the number of hours the employee must work. However, the employer still has to pay overtime if the nonexempt employee works more than 40 hours per week. The best practice is to inform the employee one full pay period in advance of the change, in writing. HTH, and thanks for reading the blogs!~ Caitlin

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