The Corona Virus scare is causing employers to lay people off and reduce their hours. For non-exempt, hourly people this is fairly easy, from a legal perspective, because if non-exempt people do not work, they do not get paid. The case is tougher for exempt workers. The FLSA requires employers to pay exempt employees at least $684.00 per week in salary, and that salary cannot be reduced (in most instances) by deductions. However, under the FLSA, an employer can prospectively reduce the pay of exempt employees, providing it is the result of an economic slowdown and not to evade the salary basis requirement under the Fair Labor Standards Act (FLSA).
Some years ago, the U.S. Department of Labor (DOL) addressed this issue in a series of FAQs. Specifically, the DOL opined that an employer could reduce exempt employee salaries, provided that the reduction is the result of an economic slowdown and not to evade the salary basis requirement. The DOL stated that the employee would, however, lose his exempt status if reductions from predetermined pay were occasioned by a day-to-day or week-to-week determination of the operating requirements of the business. The DOL reasoned that permissible prospective reductions reflect the long-term needs of the business, while impermissible short-term, day-to-day or week-to-week reductions reflect an absence from scheduled work occasioned by an employer or its business operations.
The agency has published Opinion Letters that affirm this principle. In Opinion Letter No. 2026, (March 4, 1997), an employer had to reduce costs because it received less money from the state to operate its programs. The employer had the option of reducing the workweek for exempt employees or laying off exempt employees. The employer proposed reducing the workweek from 40 to 32 hours, with a commensurate reduction in pay. None of the employees would receive less than the salary basis requirement. The DOL noted that the employer’s salary reduction plan resulting from a reduction in the workweek did not defeat the exemption.
In Opinion Letter No. 2162 (June 3, 1999), the agency re-affirmed this principle. The Letter asserted that a fixed future reduction in wages when operating less than a full workweek due to economic conditions was permissible. It should be noted that the reduction must be proportionate to the full salary. In other words, if the salary is $1000 per week and the usual work week is five days, a reduction of $200 would represent that needed proportionality.
Thus, employers may prospectively reduce exempt employees’ workweek from, for example, 40 hours to 32 hours over a several week period, with a commensurate reduction in pay. The employer should issue an announcement would advise the exempt employees of this necessity, how long it may last (if known) and how their salary would be reduced. This method of implementation is along the lines of those approved by the DOL and appears to be the safest method of implementation.