Can We Pay our Salaried Employees Less if we Revert to a 4-day - 32 Hour Workweek?
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Please help with this dilemma. I really need the brightest and best to jump in on this one.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
The very real effect of this all-consuming economic downturn is finally making a tangible impact on my Company. The Company President is hoping to announce a furlough in the form of a 4-day, 32-hour workweek. The President feels that it will be perfectly legal if we craft a "Hardship Policy" to allow us to pay our salaried employees one day's wage less than they would normally receive on a normal 5-day, 40 hour work week, as a cost-savings measure.
My analysis is that this is neither possible nor legal, as salaried employees are to be paid their full and regular salary for any part of a week that they work, especially if they are ready and available to perform their duties but are constrained by the Company.
My boss wants me to create this new policy immediately, but I could find nothing in legal that would permit us to do so. What say you?
Comments
HRforMe posted this on Jan 9 in response to the "Layoff-Round 2" post in the "Performance & Termination" section, and I thought it was especially well put and easy to understand.
"If you do the reduction in time/pay to exempt employees, you need to make sure that you aren't phrasing it hourly. In other words, say you want to go to a 4 day week and you are reducing their pay to $x (or 20%) for the new position. The exempt employee is still expected to get the job responsibilities done for that salary regardless of the number of hours it takes. You DO NOT want to say that the employee now only has to work 32 hours per week for the 20% reduced pay. This can lead to an issue with whether they should really be hourly non-exempt.....It is just a good can of worms to stay away from honestly."
Are you making only exempt employees go to a 4-day week? Is this voluntary? You need to see if you are getting into any discriminatory actions by doing this. Is any particular group more affected than any other?
You cannot tell exempt employees they have to work a set number of hours or you risk running into wage and hour issues. They get paid for a job regardless of the number of hours worked. The new, 4-day week position carries with it a 20% salary reduction.
Everyone company-wide is having their hours reduced to the 4-day workweek. It's just that with hourly employees it's cut and dry. They get paid for the hours worked.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
So you're suggesting crafting a message that reads something like, the reduction in hours comes with a 20% (or however much it translates into) reduction in pay for salaried employees.
Again, I specify salaried employees as the non-exempts are paid on a different principle and do not require the extra piece of clarification.
[quote user="Crayl"]I would stay away from the phrase "reduction in hours." It is a reduction in days. The salaried employees will now work 4 days rather than 5, a 20% reduction in days and in pay.[/quote]
That doesn't really solve the problem. A single day business closure for financial reasons is no different than a single day business closure due to bad weather in terms of your responsibility to pay a full week's pay when paying on a salary basis.
The problem is that you cannot link salary pay to time worked (hours, days, minutes, eons, whatever), without opening yourself to the accusation that your intention was to pay them for time rather than goal achievement all along. That's a challenge to exempt status, which opens the door to back overtime pay.
You might want to polish this up some, but the message is simple: "Times are tough. All salaried employees will receive a 20% reduction in pay while we weather the storm. Hourly employees' schedule will be reduced by one day per week."
Make sure that your planned reduction does not cause you to fail the salary level test: $455/week is the current minimum.
Thank you all for the responses. TXHRGuy I especially like your answer. Bear with me while I explain what I think you mean. The hourly employees work one day less, while the salaried employees work their 40-hour schedule with a 20% reduction in pay. For all intents and purposes, the cost savings to the Company is the same as if both classifications of employees working a 4-day workweek (even though the exempts maintain their 40-hour schedule). Correct?<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Correct. However after you lower pay, you can change company policy on exempt employee schedules and change the exempt's work schedule to be a 4 day workweek if it is what the company wants to do. At that point, they would still be getting a whole weeks pay....just a lower one due to the decrease....AND they would be getting a schedule decrease.
In other words, modify the pay 1st and then the schedule...rather than the schedule and then the pay. Yes, it sounds like splitting of hairs, but it will keep you more in compliance with the intent of "exempt" employees by doing so. Like TXHRGuy said, you really don't want to link the two.
Yes folks, it keeps getting better. Our President is not in favor of the salary reduction concept as he does not like the message it sends to his exempts. He would prefer to skirt the issue of, "once you work any part of a week you must be paid the agreed upon salary for the whole week (except in the first and last week of employment), by requiring exempt employees to take a week off at a time without pay, until we can sustain a regular schedule. Hmmmmmmm<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
My understanding of the laws tells me that this would not work because the salaried employees would be staying home from work through no fault of their own, and are therefore available and ready to perform the duties for which they are to be paid the agreed upon salary.
Doesn't asking salaried employees to take a week off here and there without pay (if they have no annual leave to supplement the loss of income) equate to the same principle as closing the plant for bad weather? Ergo, as the lack of work is through no fault of their own, wouldn't we still have to pay the agreed upon salary?
Please respond soon. Inquiring minds are waiting with baited breadth.
In other words, modify the pay 1st and then the schedule...rather than the schedule and then the pay. Yes, it sounds like splitting of hairs, but it will keep you more in compliance with the intent of "exempt" employees by doing so. Like TXHRGuy said, you really don't want to link the two.[/quote]
I wouldn't. For me, I'd change them to 4 10s and not catch them leaving early.
DOL or attorney for the plaintiff could look at this the same way EEOC will look at "complaint of discrimination on day 1, fired for poor performance on day 2". That is, they will say that the pay reduction over financial difficulty was merely a pretext for cutting their pay on an hourly basis. If business is down, they will have less to do, let them go home when they're done. If they work 32 hours, everyone's as happy as they can be with a 20% pay cut.
Yes folks, it keeps getting better. Our President is not in favor of the salary reduction concept as he does not like the message it sends to his exempts. He would prefer to skirt the issue of, "once you work any part of a week you must be paid the agreed upon salary for the whole week (except in the first and last week of employment), by requiring exempt employees to take a week off at a time without pay, until we can sustain a regular schedule. Hmmmmmmm<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
My understanding of the laws tells me that this would not work because the salaried employees would be staying home from work through no fault of their own, and are therefore available and ready to perform the duties for which they are to be paid the agreed upon salary.
Doesn't asking salaried employees to take a week off here and there without pay (if they have no annual leave to supplement the loss of income) equate to the same principle as closing the plant for bad weather? Ergo, as the lack of work is through no fault of their own, wouldn't we still have to pay the agreed upon salary?
Please respond soon. Inquiring minds are waiting with baited breadth.[/quote]
Sorry I missed this post before. If the leave is for an entire week, even though the employee is available to work, they are not entitled to pay. If you have screwy pay periods that overlap weeks, this can get awkward because the act is about weeks, not pay periods. They may be entitled to unemployment depending on your state's rules but, generally, I would expect them to win a little UI money there.
[quote user="1361667"]I believe if the employees are truly working only 4 days as opposed to 5, you could reduce the salary. An exempt employee must be paid for any part of a day they work, but if they don't work at all on a given workday, the salary can be reduced by that day. I suggest you review the dol.gov site for the fact sheets regarding compensation of exempt employees.[/quote]
False.
If the reason they are not working on the 5th day is because the company didn't feel like utilizing them, the company still has to pay. Read up on salary basis of pay: the company's desire not to use the person to their fullest capacity does not reduce the company's responisbility to pay for a full week's work. The very thing you are talking about is directly opposed to the purpose of the salary basis of pay.
[quote user="Jake2"]The salary can be reduced if the position still meets all the conditions for the particular exemption, including the minimum weekly salary of $455.The FLSA allows reductions in employees’ salaries as long as the reductions are not designed to circumvent the salary basis requirement. When an employee is paid less than $455 a week, his or her position does not meet the FLSA exemption requirements. In such a case, the employee could be paid on an hourly basis. You should also cosider any iumpact on benefits eligibility (i.e., do you have a company policy saying that only FT/40 hr/week employees are eligible for certain benefits and leave accrual? Will the reduction in hours affect the employee's right to certain types of leave/leave accrual, etc.)[/quote]
There's never been a problem with the prospect of reducing the pay of a salaried person, only with reducing it BECAUSE of a reduction in hours worked BECAUSE that creates the appearance of an hourly basis of pay masquerading as salary pay.
The requirement to meet the minimum was already mentioned.
There are three parts to an exemption:
If you fail any of the three tests, you are open to a back overtime claim if you lose a challenge to an exempt designation. Moving salary in lockstep with hours worked can be used to challenge whether or not a person was paid on a salaried basis.
[quote user="dmverderosa"]Oh gosh, everything about this post is incorrect. Please review the DOL site for guidance instead.[/quote]
That's pretty good for a first post. Can you be a little bit more specific?
I already worked this issue out in January, by incorporating advice received in this forum. Which was also in keeping with your interpretation of how things should be done. We did not reduce the hours of our salaried personnel. We still work 40, with a reduction in pay of 10 % to match the cost savings of reducing the hours of the non-exempt staff. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
What we've also done for the exempts is created a flexible schedule that still maintains the 40, while allowing varying work-schedule options. For instance, I now work 9 hours Monday to Thursday and work 4 hours on Friday, so I'm off by 11:15 a.m. :0)
I have to say, the service that this forum provides is invaluable. Thanks so much for your submissions.
[quote user="dmverderosa"]Oh gosh, everything about this post is incorrect. Please review the DOL site for guidance instead. [/quote]
Not sure what you are referring to on the DOL site, but TXHRGuy's advice has been correct. If you need another interpretation, please read this article from a major employment law firm that backs up the advice given.
http://www.laborlawyers.com/showarticle.aspx?The-Vacation-Nobody-Wants&Ref=list&Type=1119&Cat=3386&Show=11436
[quote user="Boss Hoss"]It seems like the easiest solution is to convert all employees that they want to reduce the pay of, back to hourly, then a week or two later reduce the number of hours worked to 32. End of problem and no one has a legitmate complaint other that they are receiving 20% less pay. Why dance with the BULL if you can stay out of the pasture? Then at a later date when business picks up the company can, if they choose say that their idea of every one being hourly isn't working out and put things back the way they were in the beginning. Just don't do it a second time. Also issue a policy change that there will be no overtime, for all hourly workers, unless authorized ahead of time.[/quote]
There's another post going on about converting exempt to non-exempt. DOL looks for games like this: simply changing them to hourly and reducing hours just opens the question as to whether or not they were properly classified in the first place, creating the hazard of a back overtime wage claim. Back to square one, securely in the pasture. The simple answer, already given, involves no BULL whatsoever and is much cleaner.
Again, there's nothing wrong with simply reducing their pay. You can reduce duties and simply state that people can leave when their duties are complete or find any other number of ways, including simply not catching people leaving early, to make them less unhappy about the reduction in pay.
I am the person that initially posted this for discussion, and I have to agree with TXHRGuy. Vacillating people's status between exempt and non-exempt is like creating a blood trail in shark infested water. It most certainly gives the impression that employees are being classified for the benefit of the company and not by the correct FLSA standards. Another thing, I believe that the same employees who may agitate for this, would be the ones to anonymously turn you in when they realize that misclassification could mean back pay. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Misclassification is a big deal. That cannot be understated. I am sure that there are enough violators who have paid heavy fines that could bear this out as true. Very often I hear Managers say, "why don't we just make such and such person salaried and allow them to work as long as hard as they want to without worrying about overtime?" Another common one I hear is, "Well salaried status is just a prestige thing anyway. Let's just make so and so salaried as a ego boost." The answer is always the same. If the employee's duties and scope of responsibilities do not pass the published guidelines, call them what you want, they cannot be salaried. Job classification is not to be messed with.
"The employer discussed in the November 13, 1970 opinion letter was considering a permanent change in the work schedule from 52 five-day workweeks to 47 five-day workweeks and 5 four-day workweeks. In that case, the salary basis requirement was not circumvented because all the exempt employees were to be paid according to a bona fide reduction of one-fifth of their salaries for a fixed schedule of five annually recurring four-day workweeks."
I can't find the original 11/13/70 letter that they refer to, but this seems to indicate that a permanent change would be ok, as long as this isn't changing week by week.
"The employer discussed in the November 13, 1970 opinion letter was considering a permanent change in the work schedule from 52 five-day workweeks to 47 five-day workweeks and 5 four-day workweeks. In that case, the salary basis requirement was not circumvented because all the exempt employees were to be paid according to a bona fide reduction of one-fifth of their salaries for a fixed schedule of five annually recurring four-day workweeks."
I can't find the original 11/13/70 letter that they refer to, but this seems to indicate that a permanent change would be ok, as long as this isn't changing week by week.
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Nice catch!
Remember, the DOL always looks at the whole situation, which often is not well laid out in the letter of request. If your situation is not exactly like the one in the letter of request, then it may not apply to your situation. I'd keep the following caveats in mind: