Can Exempt Employee Pay be Reduced due to an Economic Downturn?
Issue: As a result of the current economic downturn, and a corresponding drop in business, your company is experiencing financial hardship. To relieve some of the financial stress, the decision has been made to reduce the salaries of certain exempt employees. Will this cause a loss of the exemption under the Fair Labor Standards Act?
Answer: An employer is not prohibited from prospectively reducing the predetermined salary amount to be paid regularly to a white-collar, 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 $455 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.
Source: US Department of Labor, Wage and Hour Division: Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues, July 2009.
Reprinted with permission. © CCH
(Submitted Aug. 2009)
<p>According to the U.S. Department of Labor, employees who qualify for exemption status generally must meet certain job duty tests and be paid on a salary basis at not less than $455 per week.</p>
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