Human Resource Blog

Salaried employees during a reduction in hours

As a result of a budget cut, I am in the beginnings of the process to prevent a reduction in force. I have cut hours of both full-time and part-time hourly employees. My question is: Can I cut hours/salary from exempt salaried employees? I haven’t thought so, since salaried employees are paid the same, no matter the number of hours worked, right? Any other ideas?

Many, many employers are in this position. There are two basic suggestions to avoid laying off employees. You can reduce exempt employees salaries, or you can implement week-long furloughs.

You are correct that under the federal FLSA or Fair Labor Standards Act, an exempt employee who is ready, willing and able to work the entire week must be paid his or her full weekly salary — even if they work fewer hours or days. So cutting hours for exempt employees will not result in any payroll savings.

However, an exempt employee who performs no work at all during the entire payroll week need not be paid for that week. This is true, even if the furlough is at the employers request (or demand.) Many, many companies are requiring that exempt employees take one, two or three weeks of unpaid furlough each quarter, as an alternative to laying people off. Employees are not permitted to use vacation time during their furlough, because that does not save payroll expenses.

The second alternative is to implement a permanent reduction in exempt salaries. Ideally, this reduction will affect all salaried employees, or an entire group of employees (such as all salespeople.) Employers can implement salary reductions unilaterally. In order to be considered permanent, the salary reduction must be in effect for at least 3 months. The best practice in HR is to inform employees at least one full pay period in advance, that their salary will be reduced. Preferably, there would be no reduction in hours to accompany the reduction in salary.

In some cases, the courts have upheld a permanent reduction in hours for exempt employees that is accompanied by a reduction in salary. But, the employees salary cannot fluctuate depending upon the number of hours worked — then they become a non-exempt employee.

Many companies are also implementing a freeze on vacation time or PTO, whereby employees can take approved time off, but it must be unpaid.

For more detail, check out the articles on exempt salary reducations on blog.laborlawcenter.com.