I have a question regarding exempt salaried employees who work 40 hour work weeks. Can their salary and hourly work weeks be decreased? For example if they had $4450 in monthly earnings working 40 hour work weeks, Could I decrease their salary by 20% and now have them work 32 hour work weeks? If this can be done then how much notice needs to be given to the employee?
Under California law, an exempt employee must earn a minimum monthly salary of no less than 2 times the minimum wage based on a 40 hour work week.Currently, this comes to $2,773.33 per month, calculated as follows: $8.00 x 2 = $16.00 x 40 hours x 52 weeks = $33,280 ÷ 12 = $2,773.33. The exempt employee must earn the minimum monthly salary regardless of the number of hours the employee works during the week. If an exempt employee’s hours are reduced in relation to a reduction in the salary the employee earns, exempt status will be lost and the employee will be nonexempt, and therefore entitled to overtime, meal and rest periods, etc. like with all other nonexempt employees.
According to the policy of the California Division of Labor Standards enforcement (DLSE):
“A Reduction In Salary Based Upon A Reduction Of Hours Is Not Permitted: The DLSE has opined that its enforcement policy, in keeping with the stated intent of the Legislature and the California courts interpretation of the California law, will not permit a reduction in the salary of an exempt employee which is the result of a reduction in the number of hours in a workday or days in a workweek the employee is required to work.”
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law,
explains everything you need to know to stay in compliance with the
state’s complex and ever-changing rules, laws, and regulations in this
area. Coverage on bonuses, meal and rest breaks, overtime, alternative
workweeks, final paychecks, and more.
Because tying an exempt employee’s salary to a particular number of hours will cause exempt status to be lost, employers who implement a salary reduction should do so without reducing the number of days in the employee’s regular workweek. However, since an exempt employee earns his or her salary “regardless of the number of hours worked,” the exemption will not be lost simply because the employee is able to complete his or her work in 2, 3, or 4 workdays, rather than 5 workdays. This is because the concept underlying the exemption is that a truly exempt employee earns his or her salary for the work performed, not for the number of hours (whether more or less than 40 hours a week) it takes the employee to complete the work.
In terms of giving notice of a salary reduction, the only legal requirement is that a salary cannot be reduced with respect to work already performed. This means that the employee must be given notice of the reduction before the employee performs any work in the pay period for which the salary is being reduced.
More information regarding the rules that apply to exempt employees can be found in our exclusive Employer Guide “Who’s Entitled to Overtime? How to Avoid Mistakes When Classifying California Employees” which California Employer Advisor subscribers can access
—Jessica Christensen, Esq.
California Employer Advisor