Recession ‘how-to’: Cutting exempt employee pay, hours — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Recession ‘how-to’: Cutting exempt employee pay, hours

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in Compensation and Benefits,HR Management,Human Resources,Leaders & Managers,Management Training

As the recession drags on, many employers have come to the grim realization that they’re going to have to reduce payroll if they’re going to survive. The last resort, of course, is mass layoffs. That’s why many have begun considering trimming compensation.

For nonexempt employees, that’s relatively easy: Just cut the number of hours each employee works.

But for exempt employees—who are paid a salary, not hourly—it’s not so simple. Handle it wrong, and you could run afoul of the Fair Labor Standards Act (FLSA), the federal law governing wage-and-hour practices. The worst-case: Cutting pay and hours could turn exempt employees into nonexempt hourly workers.

And that could expose you to a costly wage-and-hour lawsuit that could consume far more in time, legal fees and awards than you hoped to save by reducing payroll.

Here’s a typical scenario that more and more employers face:

A small employer faces a cash crunch and decides to cope by asking exempt employees to accept a 20% pay cut, along with a 20% reduction in the number of hours worked. However, some of the employees continue to work far more hours. How should the employer handle this situation?

FLSA exempt employees must be paid the same salary each week regardless of how many hours they work. It is permissible to reduce their work schedules prospectively and to reduce their pay in accordance with their reduced schedules. The reduced schedules, however, must be bona fide changes and not designed to pay the employees less for working essentially the same schedules they did before the change.

They should be paid the same amount each week even if their hours fluctuate. However, their hours should generally be in the range of the hours set by the reduced schedules.

Now, what about time sheets?

Should exempt employee record their reduced hours on time sheets, even if they actually work longer hours?

No. Requiring employees to document information that everyone knows is inaccurate is never a good idea. This could be used in litigation to discredit the company and attack the accuracy of any document the company seeks to introduce as evidence.

It is a particularly bad idea in this case, since you can accomplish the cost saving goals the company is seeking without requiring any documentation of hours worked (much less false records of work schedules). If the employees are truly exempt under the FLSA, and get their salaries regardless of how many hours they work, it’s not necessary to record their hours.

And, it’s OK to establish a generally expected workweek with a commensurate salary as long as you make it clear to exempt employees that they’re being compensated for the work they perform, regardless of the number of hours they work.

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