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Furloughs and unpaid time off create wage-and-hour problems

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in Compensation and Benefits,FMLA Guidelines,Hiring,Human Resources,Office Management,Payroll Management

Flexible work schedules have been all the rage in businesses across America. Employers advertising themselves as “family-friendly” offered flextime, family leave, telecommuting and paid sick leave. When it comes to recruiting workers, those are great ways for an organization to differentiate itself from run-of-the-mill competitors.

But then the recession hit, yanking the economy—and unemployment figures—25 years into the past.

Family-friendly practices have suddenly taken a back seat as struggling businesses focus on the bottom line. According to The Washington Post, some employees are so fearful of losing their jobs that they’re not taking time off to handle family responsibilities, believing that doing so could make them look less committed to work—and more expendable in a layoff.

Now employers are looking for other ways to give employees time off, albeit involuntarily. Family-friendly flexibility has been replaced by furloughs and forced shutdowns. Reduced work schedules help employers cut hours and shed costs.

The goal is to reduce payroll costs without having to lay off employees.

Furloughs and exempt employees

Generally, requiring nonexempt hourly employees to take involuntary leave doesn’t cause any problems for employers.

But when employers impose furloughs, forced shutdowns and reduced work schedules on exempt salaried employees in increments of other than a full week, it can jeopardize exemptions under the Fair Labor Standards Act (FLSA).

Section 13(a)(1) of the FLSA exempts from minimum wage and overtime pay “any employee employed in a bona fide executive, administrative, or professional capacity.” To qualify for one of those exemptions, an employee must, among other factors, receive a weekly salary of at least $455 per week.

The FLSA rules

According the U.S. Department of Labor:

“[a]n employee will be considered to be paid on a “salary basis” … if the employee regularly receives 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 …. An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” 

In no event can an employer take any deductions from an exempt employee’s salary for full or partial-day absences occasioned by a lack of work. If an employee is ready, willing and able to work, deductions may not be made for time when work is not available.

Alternatively, however, deductions from an employee’s fixed salary that correspond to a reduction in hours in the normally scheduled workweek are permissible, as long as the salary remains above $455 per week.

Advice: If salaried exempt employees are included in any alternative scheduling plans, pay careful attention to how the scheduling affects their pay.

Questions to ask

If you plan to mandate unpaid days off for exempt employees, pause and ask the following questions:

___Yes  ___ No  Is the proposed salary deduction going to be an increment of other than a whole week?
___Yes  ___ No  Is it occasioned by a lack of work or other operational needs of the business?
___Yes  ___ No  Is the employee ready, willing and able to work?

If you answer yes to each of these questions, then the cost-savings plan most likely changes that employee’s status from exempt to nonexempt.

In that case, the employee would become eligible for overtime on a going-forward basis, a change that could cost more than you were trying to save in the first place.

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