Business Shutdowns and Furloughs
It should be no surprise that many employers have sought creative work arrangements in order to weather bleak times without resorting to morale-killing layoffs. Furloughs, temporary shutdowns, and reduced-hour schedules are common workplace solutions. However, the intricacies of the FLSA make these solutions tricky.
The salary basis test is not satisfied when an employer reduces an employee’s salary due to absences that are occasioned by the operating requirements of the business. That is true for both full- and partial-day absences. Exempt employees’ salaries may be reduced, however, for business shutdowns that result in employees missing 1 or more full weeks of work. The deductions must be made in full week increments. So, if a business shuts down for 1 week and 4 days, it may reduce exempt employees’ salaries only for the 1 full week in which they performed no work.
Furloughs involve placing employees in temporary nonduty, nonpay status for budget reasons. A furlough differs from a normal layoff in that employees continue to work on a fairly regular basis, but the employee is scheduled to have certain days off. The DOL has released several opinion letters addressing how furloughs affect exempt employees. The following are the main principles:
- Weeklong furlough. If an employer sets up a weeklong furlough and doesn’t pay exempt employees, there is no risk of losing the employees’ exempt status because the FLSA regulations provide that exempt employees need not be paid for any workweek in which they perform no work.
- Partial-week furlough deducting employee pay. If an employer sets up a partial-week furlough and deducts the pay of exempt employees for the furlough days, the employees are at risk of losing their exempt status and may be entitled to overtime.
- Partial-week furlough using vacation time. If an employer sets up a partial-week furlough and uses vacation time for the furlough time so that the employees receive their usual salary, there is no risk of losing the exemption.
- Permanent furlough arrangement. Employers may set up a permanent change in an employee’s usual weekly schedule, such as changing the weekly work schedule from 5 days to f4days, and altering the employee’s salary to match. As long as the exempt employees receive at least the $455 weekly salary required by the FLSA for exemption, they will remain exempt.
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The rules for determining payment during inclement weather are the same as those for furloughs and business shutdowns. Again, an exempt employee’s pay cannot be docked when he is ready, willing, and able to work but no work is available. Applying this principle, employers that decide to close because of weather conditions must pay exempt employees their regular salaries for any shutdown lasting less than one full week.
But what if your business is open? When your office or facility is open for business and an exempt employee doesn’t report for work because of bad weather conditions, he is not considered “ready, willing, and able” to work—even if his unreadiness is based on conditions beyond his control.
The DOL has stated that “an absence due to adverse weather conditions, such as when transportation difficulties experienced during a snow emergency cause an employee not to report to work for the day even though the employer is open for business, [is] an absence for personal reasons. Such an absence does not constitute an absence due to sickness or disability.”
Also, remember that working from home “counts,” so if an exempt employee spends all or part of a snow day working from home, she must be paid for the full day.
New and departing employees
Finally, it is not necessary to pay exempt employees their full salary for their first or last week of work if they don’t work a full week.
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