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Reduction of hours/pay for Exempt employees

This is a confusing subject. What is the difference between “salary deductions due to a reduction of hours worked for short-term business needs” and “a reduction in salary correspsonding to a reduction in hours in the normal scheduled work week. We are looking at temporarily having exempt employees reduce their hours with pay being prorationed to that reduction. As long as the exempt employee meets the salary basis, is this ok? Also what is the opinion of thus reducing PTO accrual based on the reduced hours????

We can illuminate this issue for you. We are not sure where you are getting those quotes, but they both seem misleading.

The answer to your quesiton is  a resounding *no*. Reducing the exempt employees hours temporarily and prorating their pay would be a violation of federal labor laws.

Under the federal FLSA or Fair Labor Standards Act, an exempt employee must be paid his or her weekly salary for any week in which the employee does any work at all. (An exception applies if the employee misses an entire day of work due to illness or person business, but that does not apply here.) The law goes so far to say that the exempt employee must be paid his or her full weekly salary, *regardless of the quality or quantity of work*.

Suppose Joe is one of your exempt employees who has traditionally worked 40 or 50 hours per week. If you change Joes schedule to 20 hours per week (because you have little work at this point) he must still be paid his full weekly salary.

The employer can reduce the salary for exempt employees, as long as that change is permanent, and affects all the employees in a certain class — meaning all the employees in the same job classification, or preferably, all exempt employees. If there is a change in the number of hours the employees must work, in many cases the courts have still upheld that this change is legal — as long as it is permanent.

In order to be considered *permanent*, the salary reduciton must be in effect for at least 3 months, and it must not be presented to the employees as temporary.

If you prorate an exempt employees salary based on the number of hours they work, even for one payroll week, under federal law they never were exempt employees. The U.S. Department of Labor will require that you go back and pay those employees for any overtime they have worked in the past 3 years.

Reducing the PTO accrual based on the new number of scheduled hours would be illegal in several states. It also stinks. Under most company policies, the employee cannot use more hours of PTO in the week than he or she would be scheduled to work. If Joe takes a week of PTO under the reduced work week, he would only be paid for 20 hours. Many companies are implementing a freeze on vacation or PTO time, meaning it cannot be used for 3 to 6 months as a cost-saving measure. However, taking away PTO time that has already been earned will engender a great deal of resentment. It would probably be better to lay off employees, from an employee morale point of view.

Read more about exempt employee salary reduction at:

or search our archives for exempt reduction.

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This entry was posted on Friday, May 22nd, 2009 at 8:56 am and is filed under
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