Surviving the downturn often means cutting hours and pay to keep the company afloat. That’s understandable and legal, unless you make one of the common cutback mistakes and run afoul of the Fair Labor Standards Act. The four ways to steer clear of legal trouble:
1. Work cutbacks in full-week increments. It’s a practice common during holidays or other slow or down-season periods. The FLSA permits full-week cuts from exempts’ pay if there is no work available during that whole week. Note: During a full-week shutdown, make sure exempts don’t do “a little work” from home. That would mean they worked part of the week, making them eligible for a full week’s pay.
2. A formal short-week schedule. That is, it’s OK to announce that for the four weeks in January, the company will be closed on Fridays, and pay will be cut commensurately. Make sure to: Announce the revised schedule as far in advance as possible so as not to make it look like you’re haphazardly cutting and have no real salary standards for exempts. Even if you cut days, you can’t increase nonexempts’ workday hours to the point that they exceed 40 hours in a week — unless you want to pay them overtime. And remember you can’t cut exempts’ salary below the magic $455-a-week figure — that would put them in the nonexempt category and make them eligible for overtime pay at a later date.
What to avoid: In a short-term pinch, some companies decide to suddenly clip a day or two off the current workweek, and lower paychecks commensurately. But the FLSA states that if exempt employees are ready and available to work in any scheduled full week in which they’ve already worked, they have to be paid for the full week.
3. Require employees to use vacation time or PTO. The U.S. Department of Labor has ruled it’s OK to mandate that employees use available vacation time or PTO during a shutdown, especially when the shutdown is for “budgetary concerns.”
4. Across-the-board pay cuts, with no reduction in the workweek. Granted, this won’t get you on the “Best Places to Work” list, but it’s a cost-cutting maneuver that’s generally legal. And to pull it off usually requires some heavy lifting in the area of maintaining morale and employee relations. So, for instance, you could announce a 5% pay cut for all employees. Just be sure no one drops below the legal minimum wage or that exempts stay above the $455-a-week mark.
Caution: Some state laws are tougher than federal laws when it comes to allowable cutbacks. Check with your state department of labor to make sure cuts don’t violate state labor laws.
