As the economy remains relatively flat, employers continue to look at mandatory time off as a cost-cutting measure. While this works well for non-exempt (hourly) employees under the Fair Labor Standards Act (“FLSA”), mandatory time off for exempt employees poses a number of obstacles.
Potential for Loss of Exempt Status
In addition to requiring performance of bona fide exempt duties, the so-called “White Collar” exemptions (executive, administrative, and professional) require that employee be paid a salary of at least $455.00 per week. If this is not done, the employee will not be exempt and overtime pay will be owed for any excess hours worked.
Paying a salary means providing the full agreed-upon compensation in any week in which the employee performs any work at all. Thus an exempt employee who works only 30 minutes one day during the week must still receive the full agreed-upon salary for that entire week. For this reason, an employer can not save any salary by making exempt employees take some, but not all of a week off.
On the other hand, the FLSA tells us that an employee is not owed anything for any workweek in which no work was performed. This is true regardless of why the employee did not work or whether not working was voluntary or involuntary.
Employers hoping to reduce costs by requiring employees to take time off (a practice often referred to as “furloughing”), can use one of these three methods:
1. Mandatory Use of PTO for a Partial Work Week
Employees can be required to use accrued vacation, paid time off (PTO) or other paid leave for any absence, including a plant shutdown, without affecting their exempt status, provided they have enough accrued time to equal their regular salary amount. The reason this is acceptable is that the employee is still receiving the required salary amount and the law does not care what the payment is called.
If an employee does not have paid time off available, forcing a day off during a partial furlough will not work since the employee will not be paid the entire salary amount that week and, as explained below, an employer cannot require an employee to take a day off without pay.
2. Voluntary Furloughs
If an employee does not have any accrued paid time off available, the employer may ask employees to take one or more day off without pay. This must be purely voluntary with no pressure or hint of penalty for refusing. Such time must be taken in full day increments.
3. Mandatory Furloughs for Entire Workweeks
As explained above, an employee need not be paid for any work week in which no work is performed. If an employer wishes to shut down for an entire week, exempt and non-exempt employees alike may be given the entire week off without pay. Remember – this applies only to actual workweeks.
If your workweek runs from Sunday through Saturday, you must furlough the employees during that precise period of time. This would work for the Christmas to New Year time frame this year because both holidays fall on Saturday. It won’t work in 2012, however, because both holidays fall on Tuesdays. You would end up laying employees off for parts of two different workweeks and owing them their full salary in each of those weeks.
Bottom Line
Be sure to consult with a knowledgeable expert before planning to furlough your employees in order to anticipate and avoid the pitfalls that await you.