What are the legal risks of a 20% salary cut for all? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

What are the legal risks of a 20% salary cut for all?

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in Compensation and Benefits,Human Resources

Q. We have to reduce salary wages by 20%. The plan is to reduce three of the five departments to 32 hours and adjust their wages accordingly. Is this legal?

A. Yes, you can reduce employee hours and, for hourly employees, doing so should not pose a legal problem. (Note: If you kept the hours the same but reduced the wages, you might run into minimum wage issues.)

For employees who are exempt from overtime by virtue of their status under the Fair Labor Standards Act, it is a little more complicated because employees must be paid their full salary on a weekly basis. The assumption is that they will work more than 40 hours in some weeks and less in others, but they are paid a salary regardless of their schedule. The only option is to reduce their salary by 20% and tell them you expect them to have to work fewer hours. Make sure their salary does not fall below the minimum necessary to qualify for exempt status if their overtime exemption includes such a provision.

 


Louis P. DiLorenzo is chair of the Labor and Employment Law Department at Bond, Schoeneck & King, PLLC, and a managing partner of the firm’s New York City and Garden City offices. In addition to representing employers and management in all aspects of labor and employment law, he is an author and frequent speaker on employment law.

 

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