Many companies have instituted across-the-board salary reductions. Many of the same companies offer their employees reduced hours as well. This can be a trap with exempt employees. The DOL recently released opinion letters addressing short-term layoffs, mandatory time-off policies, and a reduction in work hours. In all three cases, the employer would allow use of vacation time but would dock worker time once exhausted.
Although the DOL had no problem with folks being required to use their vacation time, it did have a problem with docking pay for the time missed. The latter can jeopardize the employee’s exempt status. Employers may dock time if the employee misses an entire week of work or voluntarily takes time off for personal reasons, but not simply because they reduced their pay and feel that it’s fair to have them work less. In other words, if an exempt employee has their pay and hours reduced, they might lose their exempt status.
According to the DOL, there is a narrow exception: A fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction. If you attempt to go this route, get some legal advice first. You’ll find the opinion letters here.
The bottom line: When it comes to exempt employees, you can fire them or reduce their pay — but watch cutting their hours in the process!
