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Aug29

Demotion and Salary Reduction

Can I reduce the salary of an employee with demotion due to poor performance? Will there be any issue from PF law?

The federal Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.

Under the FLSA, employees are classified as either non-exempt or exempt.

Non-exempt employees must be paid for all hours worked and are subject to overtime and minimum wage requirements prescribed by the FLSA.

Conversely, exempt employees receive a fixed predetermined salary for any week during which work is performed regardless of the quantity or quality of such work. Exempt employees are excluded from overtime pay provisions.

Hourly and salary paid are compensation terms.

Demoting any employee, non-exempt or exempt, for poor performance is an acceptable disciplinary practice. Salary or wage reductions are common with demotions. Reducing a non-exempt employee’s wage is permissible as long as the employee receives at least minimum wage (either federal or state minimum wage, whichever is higher). With an exempt employee, the salary reduction must be permanent and still be at least $455 per week ($913 per week starting December 1, 2016 per the new DOL regulation) to satisfy the salary level requirement for exempt status under the FLSA.

We’re not sure what you mean by PF law. But, feel free to reply via the comment section and let us know which state law specifically you’d like us to research.

HTH!

This entry was posted on Monday, August 29th, 2016 at 12:26 pm and is filed under
Compensation.
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