Employers are considering and implementing all sorts of work schedule changes to adapt their businesses to the abrupt economic downshift they have to deal with. If employers are not outright laying off employees, they are reducing hours to save on their payroll expense. From a business standpoint this can be done for non-exempt employees by just adjusting their work schedule and paying them based upon their respective hourly rate.  But what about exempt employees? 

Exempt employees are those that fall under one of the exempt classifications outlined in Part 541 (Section 13 (a) (1)) of the Wage and Hour regulations. The largest of these exemptions are the Executive, Professional, Administrative, Outside Sales, and Computer professionals.  As a general rule, exempt employees must be paid their total weekly salary for any week in which any work is done. If an employer reduces hours and then reduces the exempt employees’ pay, they are violating the wage and hour exemption rules and the exemption will be lost.  As a result, the position would have to be treated as non-exempt and that means record keeping and payment of overtime if the employee works over 40 hours in a week.

So how can an employer legally reduce the work time an exempt employee is normally scheduled to work in order to fairly pay the person at a reduced salary? Wage and Hour states the following:

“An employer is not prohibited from prospectively reducing the predetermined salary amount to be paid regularly to a Part 541 exempt employee during a business or economic slowdown, provided the change is bona fide and not used as a device to evade the salary basis requirements. Such a predetermined regular salary reduction, not related to the quantity or quality of work performed, will not result in loss of the exemption, as long as the employee still receives on a salary basis at least $684 per week. On the other hand, deductions from predetermined pay occasioned by day-to-day, or week- to-week determinations of the operating requirements of the business constitute impermissible deductions from the predetermined salary and would result in loss of the exemption. The difference is that the first instance involves a prospective reduction in the predetermined pay to reflect the long term business needs, rather than a short-term, day-to-day, or week-to-week deduction from the fixed salary for absences from scheduled work occasioned by the employer or its business operations. (Question 7 W&H Fact Sheet #70) https://www.dol.gov/agencies/whd/fact-sheets/70-flsa-furloughs

ASE is responding to quite a few employers looking to reduce hours as well as possibly implementing employee workshare programs during this business slowdown caused by the COVID-19 pandemic. If looking to reduce the hours of salaried exempt employees, the employer must be cognizant of how to do this legally.

Additional ASE Resources
CCH - ASE members have access to complete Wage and Hour information in its CCHHRAnswersNow online library.

COVID-19 – For more guidance on COVID-19 in the workplace visit the ASE Coronavirus Resources page or the COVID-19 FAQ page.

ASE Survey - ASE is conducting an Economic Impact survey to find out how employers are handling the financial impact of COVID-19.  To participate click here.