Co-authored by Meredith Bailey and Alex Passantino

Early this morning, President Obama signed legislation ending the sixteen-day federal government shutdown and returning hundreds of thousands of federal employees back to work.  The end of the shutdown also prompts the welcome return of many private sector employees by employers ready to resume operations.  Employers are reminded that special considerations may accompany the return of exempt employees from furlough status:  The Fair Labor Standards Act (“FLSA”) requires that exempt employees be paid on a salary basis even if their return results in a partial work week.

Salary Basis Test

The FLSA requires that exempt administrative, professional, and executive employees be paid on a salary basis at not less than $455 per week.  State laws may impose a higher threshold.  See examples here.  To be paid on a “salary basis,”  an employee must regularly receive a predetermined amount of compensation each pay period on a weekly, or less frequent, basis.  The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work.

An exempt employee must receive the full salary for any workweek in which the employee performs any work, regardless of the number of days or hours worked (subject to  limited exceptions not discussed here).  So whether an exempt employee returns today, Friday, or the middle of next week, employers are cautioned to pay his or her full salary for the week of return.  Any reduction in salary due to a partial-week furlough could result in the loss of exempt status for the employee and may give rise to employer liability for overtime pay.

Remember, the critical time period is the FLSA “workweek,” which is a fixed and recurring period that does not necessarily match up with a calendar week.  In determining whether an exempt employee has worked during the workweek, ensure that you are using the FLSA workweek period as your guide.

As an alternative, an employer may also keep exempt employees on furlough through the end of this workweek and not pay any salary. The failure to pay a salary for a workweek in which an exempt employee performs no work does not negatively impact that employee’s salary basis status. See here.

Use of Accrued Leave

And yet another option is that an employer can reduce an exempt employee’s salary and substitute paid leave (voluntarily or involuntarily), so long as the employee receives payment equal to the employee’s regular salary in any week in which any work is performed.  See here.  Thus, employers may require exempt employees to use paid leave through the end of this workweek, and return to work next week.  This approach does not decrease weekly payroll costs but can help promote an employer’s overall financial condition by eliminating some accrued liability in the form of paid leave from the employer’s books.

As always, when in doubt, call or write your wage-hour counsel.

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