The United States Department of Labor’s Wage and Hour Division (WHD) recently issued a fact sheet containing information on furloughs and other reductions in pay. Set forth in question and answer format, the fact sheet walks employers through a number of issues raised by the Fair Labor Standards Act in a difficult economic environment.
Primarily, WHD focuses on the tension between furloughs and reductions in pay on the one hand and the salary basis of payment on the other. Under the FLSA, the salary basis test requires that an employee receive (subject to several enumerated exceptions) each pay period “a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” Furloughs and similar devices are, by definition, reductions in pay and/or work schedules.
Relying on several opinion letters issued earlier this year, WHD identified a number of issues related to salaried, exempt employees:
- The failure to pay a salary for a workweek in which an exempt employee performs no work does not impact that employee’s salary basis status. See Wage and Hour Opinion Letter FLSA2009-14 (Jan. 15, 2009).
- Because the FLSA does not require an employer to provide paid vacation benefits, restrictions on the use of those benefits is left to the employer, and “the employer may require exempt employees to use accrued vacation time for any absence, including one resulting from a plant shutdown, without affecting their exempt status, provided that employees receive a payment in an amount equal to their guaranteed salary.” Wage and Hour Opinion Letter FLSA2009-2 (Jan. 14, 2009).
- An employer can “substitute or reduce an exempt employee’s accrued leave for the time an employee is absent from work, even if it is less than a full day and even if the absence is directed by the employer because of lack of work, without affecting the salary basis of payment, provided that the employee still receives in payment an amount equal to the employee’s guaranteed salary.” Wage and Hour Opinion Letter FLSA2009-18 (Jan. 16, 2009).
- An employee’s salary can be reduced on a prospective basis, provided that the change is bona fide and not an effort to evade the salary basis requirements.
The WHD fact sheet and opinion letters make clear that employers have a number of FLSA-permissible options when considering how best to deal with an economic downturn. The critical consideration is whether the employee receives a predetermined amount (either through salary or the use of leave)each workweek in which the employee performs any work.