Navigating a DOL Compliant Salary Reduction and/or Furlough
*By Michele L. Jakubs

Salary reductions or voluntary furloughs are increasingly popular for employers facing economic hardship. However, the Fair Labor Standards Act (the “Act”) imposes statutory requirements related to salary reductions and furloughs dependent upon an employee’s non-exempt or exempt status. Under the Act, an employer may reduce a non-exempt employee’s hourly wage and/or scheduled hours so long as the employer pays the minimum wage and statutory overtime due for all hours worked.

Implementing salary reductions or furloughs for exempt employees implicates more complex statutory requirements. Employers implementing these programs have greater considerations. For example, reducing an exempt employee’s salary to less than $455 per week changes the employee’s exempt status to non-exempt. Once an employee is non-exempt, the employer must pay minimum wage and statutory overtime due for all hours worked. In addition, an employer who decides to utilize furloughs in an effort to reduce costs must place its exempt employees on furlough for the entire workweek. If an exempt employee performs any work in a workweek, then the employee must receive his/her full salary for that week. As a result, exempt employees selected for a furlough cannot perform any work, including the most basic work functions such as checking work email from a blackberry or home computer or taking a work related phone call. Employers must pay employees for the furlough week if the employee performs even such basic work functions.

Because of the complexities associated with salary reductions and furloughs, the Department of Labor (“DOL”) just issued an FAQ to assist employers in navigating this potential minefield. Employers may review the DOL’s FAQ at http://www.dol.gov/esa/WHD/flsa/FurloughFAQ.pdf.

*Michele L. Jakubs practices in all areas of employment litigation and wage and hour compliance and administration. For more information concerning the Fair Labor Standards Act or any other employment issue, please contact Michele at 216.696.4441 or mlj@zrlaw.com.

This newsletter is not intended as a substitute for professional legal advice and its receipt does not constitute an attorney-client relationship. If you have any questions concerning any of these articles or any other employment law issues, please contact Stephen S. Zashin at 216.696.4441.
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