At press time, federal government agencies and many of the contractors that support them were still shut down by the inability of our ostensible leaders in Washington, D.C., to fulfill their Constitutional duty to pass a budget. No matter its length, though, the shutdown may cause headaches for private-sector employers that had to furlough employees or pay for non-productive time because their government contracts or grants were suspended.
Generally, nonexempt employees do not have to be paid when they don’t work. But should exempt employees be paid for all of these days off? And what can employers do if they have made a mistake in how they paid those employees for those periods?
Full-week Furloughs or Absences Do Not Require Pay
Most executive, administrative and professional employees, and some computer employees, need to be paid on a “salary basis” in order to be exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act. U.S. Department of Labor regulations provide that employees are paid on a salary basis if they receive each pay period a predetermined amount constituting all or part of their compensation, which is not subject to reduction because of variations in quality or quantity of work performed. This means that exempt employees must receive their full salary for any week in which they perform any work without regard to the number of days or hours worked.
On the other hand, the regulations make clear that: “Exempt employees need not be paid for any workweek in which they perform no work” (29 C.F.R. §541.602(a)). As such, when a place of work is closed for a full week, whatever the reason, employees need not be paid for that week (Wage-Hour Opinion Letter, April 30, 1975). It follows that employees who are furloughed for an entire workweek need not be paid at all for that period.
Partial-week Furloughs Could Defeat FLSA-exempt Status
But there’s a hitch. The government shutdown began on a Tuesday. Thus, for the majority of employers, whose workweek starts on Sunday, any furloughs are likely to include at least one partial workweek, since Monday was already worked. If exempt employees’ time off is less than a full workweek, furloughs must be handled differently. The regulations state:
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.
A furlough imposed by a government contractor or grantee affected by a federal government shutdown is covered by this rule prohibiting deductions “for time when work is not available.” Thus, if any employer willfully deducts pay for a partial-week furlough, affected employees would lose their exempt status.
This requirement may cause extreme hardship to employers that must pay employees for work that was never performed. One possible solution is to reassign these employees to commercial work, if that is available, or to business development or privately funded research and development projects. Employers also should note that they may deduct from exempt employees’ leave banks for full or partial days when those employees are instructed not to report to work because of budgetary constraints or lack of work, so long as employees’ weekly salaries are not reduced (Wage-Hour Opinion Letter, April 6, 1995; and Wage-Hour Opinion Letter No. FLSA2009-18, Jan. 16, 2009). In essence, employers can require exempt employees to use accrued vacation.
A Word of Caution
It is important to remember that employees must be paid for their work even if the customer is not paying. Thus, any contractors or grantees who decide to perform “at risk” in the hope of getting paid later, which may not happen, will have to pay their employees anyway. Otherwise, when the government does re-open for business, you may find a DOL investigator at your door.
For a full analysis of the wage and hour issues associated with furloughs, go to http://hr.complianceexpert.com/hr-intelligence/work-furloughs-due-to-the-government-shutdown-how-should-employers-pay-employees-1.366840.
Shlomo D. Katz, counsel in the Washington, D.C., office of Brown Rudnick LLP, practices wage and hour law and advises clients on employee classification and salary test issues. He has successfully litigated before federal, state and local courts, the U.S. Government Accountability Office and the U.S. Boards of Contract Appeals. Mr. Katz also is a co-author of Thompson’s various FLSA publications.