Seyfarth Synopsis: Employers around the globe are feeling the impact of coronavirus (COVID-19). Before reducing hours or pay to address health or economic concerns, employers should take heed of federal and state wage-hour laws.
As coronavirus continues to spread around the globe, its economic effects have grown more far-reaching. Some companies are confronting a surge in demand for their goods and services. For others, supply chain disruptions have raised concerns whether they will be able to procure the raw materials they need to build their products. Employees are being asked to work from home or avoid non-essential travel. Conventions and large public events have been cancelled or scaled back.
In order to prevent the spread of the coronavirus among their workforce, or as a cost-saving measure taken in response to negative economic impacts, some employers may need to consider temporary furloughs, reductions in hours, or reduced pay. Other employers may find their products and services in greater demand, only to confront staffing challenges that increase hours worked. These changes have potential wage and hour law implications that employers should bear in mind.
Reductions in Hours and Hourly Rate
Non-exempt employees need only be paid for time when they are working. Employers can reduce scheduled hours or hourly pay without implicating wage and hour laws. Any changes to pay rates must be prospective.
Federal and state minimum wage requirements must still be satisfied, of course. If you’ve decided to reduce pay due to the economic impact of the coronavirus, it is important to check state law requirements regarding notification of pay rate changes.. It is also important to continue paying workers on time.
Exempt employees are subject to the salary basis test; generally, they must be paid the same minimum weekly salary regardless of how many or few hours they work each week. (To qualify under federal law, an employee must earn a minimum salary of $35,568 per year, which works out to a weekly salary of $684.) Failure to pay an employee’s full weekly salary could jeopardize the employee’s exempt status and make them eligible for overtime pay.
Full-Week Reductions in Hours and Salary
An employer can impose a full-workweek furlough (or require an employee to take a full workweek off) and not pay the weekly salary, but with an important caveat: the exempt employees can perform no work during the week. Employers that choose this route must ensure that furloughed employees completely unplug from the workplace and abstain from responding to email, taking phone calls, or otherwise working until their return.
Exempt employees who perform any work at all generally must be paid for the full week, and it can be very difficult to completely prohibit all work by an exempt employee during a workweek. However, employers can meet the salary requirement through payment of vacation time for time that the employee does not work during the workweek. Accordingly, employers can mitigate risk by mandating that furloughed employees use accrued vacation time for non-worked time during the workweek (and paying regular salary for time actually worked), rather than treating the furlough as unpaid.
Partial-Week Reductions in Hours and Salary
As a general rule, partial-week reductions in salary are not permitted because they violate the salary basis test. For example, employers generally cannot pay exempt employees 80% of their salary for working four-day workweeks instead of five at the employer’s request.
There is a narrow exception to this rule. Employers may implement a fixed reduction in future salaries and base hours due to a bona fide reduction in the amount of work. The FLSA and federal regulations do not specifically address furloughs, but Department of Labor opinion letters and courts have (almost) unanimously concluded that employers may make prospective decreases in salary that correspond to reduced workweeks, so long as the practice is occasional and due to long-term business needs or economic slowdown. What counts as “occasional”? The question is not settled, but federal courts have held that salary reductions twice per year are infrequent enough to be bona fide.
Once the economic impacts of the coronavirus subside and employees return to work, caution is still warranted in returning furloughed employees to work. As always, when dealing with these issues, be sure to contact your wage and hour counsel.