Issue #5) Can an employer reduce an exempt employee’s salary for disciplinary reasons? Example: A non-exempt employee is paid a salary of $500 per week, and they work 50 hours in a given week. These cookies will be stored in your browser only with your consent. Issue #6) Can an employer pay an exempt employee partial salary in the first or final week of employment? In other words, the part-time exempt employee’s pay may not fluctuate from week to week. Payment of the employee’s guaranteed salary must be made, even if an employee has no accrued benefits in the leave plan and the account has a negative balance, where the employee’s absence is for less than a full day. By Brad Cave Classifying an employee as exempt under the Fair Labor Standards Act (FLSA) comes with a trade-off. Issue # 1) Can an employer reduce an exempt employee’s salary due to a slowdown in business? For example, during a business or economic slowdown, provided the change is bona fide and not used as an attempt to evade the salary basis requirements. The FLSA requires employers to pay exempt employees at least $684.00 per week in salary, and that salary cannot be reduced (in most instances) by deductions. My General Manager has informed me that my compensation is to be restructured. In some circumstance, however, a prospective reduction in salary may not cause a loss of the exemption. Yes, the salary can be reduced if the position still meets all the conditions for the particular exemption, including being paid a minimum weekly salary of $455. Thus, employers may prospectively reduce exempt employees’ workweek from, for example, 40 hours to 32 hours over a several week period, with a commensurate reduction in pay. Like what you see? means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. On August 19, 2009, in response to the current economic downturn, the California … hbspt.cta.load(485718,'525c0ea1-9666-4095-907e-4f7cd5b5d8f7',{}). Exempt employees must generally be paid on a salary basis at a predetermined amount each pay period. When an employee is paid less than the minimum salary requirement, his or her position does not meet the FLSA white collar exemption requirements. The part-time exempt employee must still receive their full weekly salary, which is not subject to reductions because of the quantity or quality of the work. Updated October 2019 Policy on Salary Deductions for Exempt Employees Page 1 Policy on Salary Deductions for Exempt Employees I. Deductions from pay are permissible with an exempt employee is absent from work for one or more full days for personal reasons. We'll assume you're ok with this, but you can opt-out if you wish. Home > Wage & Hour > Labor Commissioner Approves Temporary Salary Reduction for Furloughed Exempt Employees. You may require the employee to use accrued paid time off or vacation time for this absence (in any increment but courts have endorsed 4-hour or longer increments), but absent a policy or accrued and available time off, you may not reduce an exempt employee’s pay on a day in which any work was performed. Answer: Thank you for your inquiry regarding reducing an exempt employee’s salary to account for a reduced work schedule provided as an ADA accommodation. If they trust you and believe that they have been given the complete story, the salary reduction is an event that has an ending. The employer can normally substitute or reduce an exempt employee’s accrued leave (or run a negative leave balance) for the time an employee is absent from work. For more information on exempt vs non-exempt employee classification, see our post How Exempt vs. Non-Exempt Classification Works. Alternatively, employers can reduce salary basis exempt employees’ salaries and hours without affecting the exempt status of the employees. When an employee takes unpaid leave under the Family Medical Leave Act (FMLA), an employer may reduce the employee’s salary based on the amount of time the employee is absent. That's two whole weeks of vacation in 4 months with no docking of their vacation or pay. See #3 above. Issue #3) Can an employer reduce an exempt employee’s salary when they are away from work for personal reasons? In some circumstance, however, a prospective reduction in salary may not cause a loss of the exemption. The below response is supported by federal laws and regulations. An exempt employee’s salary may be reduced for penalties imposed in good faith for infractions of safety rules of major significance; such a deduction can be equal to a partial day’s wages. https://www.dol.gov/whd/overtime/fs17g_salary.pdf, https://www.dol.gov/whd/regs/compliance/whdfs70.htm, https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/ifanexemptemployeerequestsamovefromfull-timetopart-timestatus,cantheemployeradjusttheindividual%E2%80%99ssalarydowntocompensatefort.aspx, Your email address will not be published. Can an employer reduce his/her salary? The employee must then be paid minimum wage and overtime required by the FLSA. Such an employee must then be paid at least the federal minimum wage and overtime pay required by the FLSA, as discussed in FAQ #2 above. Consider if this reduction may cause the employee to lose exempt status. The most common reason for a salary reduction is when an employee is demoted at work. Ensure your pay reductions do not adversely affect employee classification for administrative-, executive- and professional-exempt categories for salaried employees. Employers may deduct from an exempt employee's pay when an employee is absent from work for one or more full days for personal reasons other than … An unpaid leave of absence for personal reasons not subject to FMLA would fall into #3 above. Salary Test for Exempt Employees . An employer may similarly reduce an employee’s salary when the employee receives salary replacement benefits under state disability or workers’ compensation laws. Can an Employer Decrease Your Salary for a Poor Evaluation?. An employer may reduce the regular workweek of an exempt employee, for example, from 40 hours to 32 hours, with a commensurate reduction in pay, provided the change applies to all workweeks going forward. Salary reduction for exempt employee in Minnesota 11-17-2007, 04:51 AM. An employer may not reduce the employee’s salary for partial days of work. An employer with a sick or disability plan, policy, or practice may also reduce an employee’s salary for such full-day absences if the employee has not yet become eligible for, or has exhausted all leave under, the employer’s plan, policy, or practice. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available. One common approach is to simply cut the salaries for your exempt employees. In each of these articles, Kim will walk you through a real-life HR scenario and break down how this situation should be handled and all the ins and outs of the rules and regulations that impact the scenario. For example, to qualify for exempt status, an administrative employee must receive a minimum salary of $455 per week. Issue #2) Can an employer reduce an exempt employee’s salary when they are on jury duty or temporary military duty? This category only includes cookies that ensures basic functionalities and security features of the website. As a general rule, being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. “ If the employer seeks volunteers to take time off due to insufficient work, and the exempt employee volunteers to take the day(s) off for personal reasons, other than sickness or disability, salary deductions may be … An employer is not required to pay the full salary to an exempt employee in the initial or terminal week of employment. Many employers don't understand that you can't cut an exempt employee's paycheck if they don't put in the full 40 hours. Employees that are paid more than $23,600 per ($455 per week) qualify for salaried positions. An employer may do this, even if it is less than a full day, and even if the absence is directed by the employer because of lack of work, without affecting the salary basis payment. For most employees, whether they can be considered for a non-exempt salary position will depend on how much they are paid, how they are paid, and what kind of work they do. How Exempt vs. Non-Exempt Classification Works. You can give fewer responsibilities or demote the employee to another position entirely. The WHD provided further clarity in a fact sheet it released in September 2019. Reductions in the predetermined salary of an employee who is exempt will ordinarily cause loss of the exemption. An employer must pay an exempt employee the full predetermined salary amount “free and clear” for any week in which the employee performs any work without regard to the number of days or hours worked. The Fair Labor Standards Act (FLSA) allows reductions in employees’ salaries as long as the reductions are not designed to circumvent the salary basis requirement. The employee’s decision must be completely voluntary. In the same scenario, an exempt employee who has no accrued benefits in the leave bank account, or has limited accrued leave and the reduction would result in a negative balance in the leave bank account, still must receive the employee’s guaranteed salary for any absence (s) occasioned by the office closure in order to remain exempt. FTE REDUCTION AS ALTERNATIVE TO LAYOFF Staff (Exempt & Non-exempt) 20 hours per week (.5 FTE ) is the minimum Effort is reduced over course of 12 months. In the early 90's, work for architects was quite scarce and employers were reducing salaries and hours correspondingly (36 hour work week, 90% salary). All three of the above exemptions require payment of a true salary: "Salary" is defined as agreed-upon periodic compensation, intended to cover a period of at least a week, equivalent to at least $684 per week,* that is not subject to reduction on the basis of quantity or quality of work performed. When an employer suspends an employee without pay pursuant to a written disciplinary policy for workplace conduct, the employer may reduce the employee’s salary based on the number of full days for which the employee was suspended. You seek an opinion as to whether this reduction is consistent with the salary basis test for exempt employees under California law. Sign up for email updates! There is no requirement that the predetermined salary be paid if the employee performs no work for an entire workweek. Employers Can Reduce Employee Salary with a Voluntary Pay Reduction There is a provision which allows exempt employees to voluntarily reduce their pay. Can an employer adjust the employee’s salary down to compensate for the reduced hours? We also use third-party cookies that help us analyze and understand how you use this website. This is provided that the employee still receives payment equal to the employee’s predetermined salary in any week in which any work is performed even if the employee has no leave remaining. It’s also permissible to reduce an exempt employee’s salary for any workweek the employee performed no work at … The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. For this week’s scenario, let’s look at different reasons an employer may want to reduce an employee’s salary, and whether a reduction would be allowed for that reason. Although such a practice can work, if it is not done correctly you may wind up losing the exempt status for your salaried employees, resulting in a significant unpaid overtime liability for all of those workers who may have been subject to the salary reduction. Impermissible Pay Docking. An employer with a vacation or PTO leave bank, policy, or practice may also reduce an employee’s salary for such full-day OR partial-day absences without affecting the salary basis of payment, if the employee nevertheless receives in payment his or her guaranteed salary. An employer is not required to pay an exempt employee’s salary for time not worked during a leave of absence under FMLA. The moral of the story is that your employees will work with you willingly to retain their jobs—and in hopes that the salary reduction is a short term solution for a non-exempt employee. Job form required to reduce FTE of 80 hours If you’re nonexempt and salaried, your salary is based on your work hours. Salary and Hours Reduction. An exempt employee’s salary can be offset by the amount the exempt employee received as jury or witness fees, or on temporary military duty. This website uses cookies to improve your experience while you navigate through the website. An employer with a vacation or PTO leave bank, policy, or practice may also reduce an employee’s salary for such full-day OR partial-day absences without affecting the salary basis of payment, if the employee nevertheless receives in payment his or her guaranteed salary. Deductions from pay are permissible with an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability. Reductions in the predetermined salary of an employee who is exempt will ordinarily cause loss of the exemption. Employees in off contract status may not use annual or sick leave. An employer may not reduce the employee’s salary for partial days of work. Michael (Mike) D. Haberman, SPHR is a consultant, speaker, writer of HR Observations, and co-founder of Omega HR Solutions, Inc. After over 30 years in HR he got tired of the past and focuses here on the Future of HR. But opting out of some of these cookies may affect your browsing experience. Issue #9) An exempt employee has requested a move from fulltime to part-time status. If state law requires a higher minimum salary for exempt employees, you cannot reduce an exempt employee’s salary below that minimum. The employer should issue an announcement would advise the exempt employees of this necessity, how long it may last (if known) and how their salary would be reduced. The difference is that the first instance involves a prospective reduction in the predetermined pay to reflect long term business needs, rather than short-term, day-to-day, or week-to-week deduction from fixed salary. If the exempt employee volunteers to take the day(s) off for personal reasons (other than sickness or disability), salary deductions may be made for one or more full days of missed work. By subscribing to our mailing list you will get the latest news from us. The employee must then be paid minimum wage and overtime required by the FLSA. Classification is based on job duties and other criteria, including pay level. Your email address will not be published. If you’re salaried and exempt, you’re not paid according to hours worked and typically must receive a predetermined salary each pay period. The employee in this case must still receive a salary of $455 per week. It is important to remember that this is a one-time reduction in weekly salary that is made upon the conversion to part-time status. In order for an employee to qualify as exempt, the employee must receive a predetermined wage each pay period. Necessary cookies are absolutely essential for the website to function properly. Under the Fair Labor Standards Act's exempt classification tests, salaried workers must meet minimum weekly wage amounts to be considered exempt in certain positions. Demotion typically occurs when an employee demonstrates poor performance, or lack of skills, or when a position is eliminated. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Since the agreement is just that the employee will be paid a $500 salary, that sum would cover any number of hours worked. Most employers know that exempt employees are not entitled to overtime. Workology Inc. All Rights Reserved. This article is part of our ongoing HR Scenario series by our National HR Client Service Manager, Kim Schaff, SHRM-SCP, PHR. This website uses cookies to improve your experience. Employees must be prepared for period of no income while in off contract status. The employer can seek volunteers to take time off due to insufficient work. Employees must be paid a predetermined and fixed salary … However, there is no requirement that the predetermined salary be paid if the employee performs no work for an entire workweek. Exempt employees must receive a salary of at least $455 per week. In each of these articles, Kim will walk you through a real-life HR scenario and break down how this situation should be handled and all the ins and outs of the rules and regulations that impact the scenario. . Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. This pay may not be reduced based on a variation in the quality or quantity of the work performed; … As a general rule, being paid on a “salary basis”. https://employersresource.com/wp-content/uploads/2017/09/HR_Scenario_Reductions_to_an_Exempt_Employee_s_Salary_featured.png, https://employersresource.com/wp-content/uploads/2020/07/Employers-Resource-Logo.png, Reductions to an Exempt Employee's Salary. FLSA Requirements for salary non-exempt employees. © 2021, Employers Resource Management, Call Us Toll-Free At (800) 574-4668, Natural Disasters & Employers’ Pay Requirements. How to Reduce the Salary of Exempt Level Employees, ← 4 Easy & Effective Team Building Strategies, Curiouser and Curiouser | HR Examiner with John Sumser. If an exempt employee is on jury duty for one full workweek, no salary must be paid for that workweek. When an employee is absent from work for one or more full days because of sickness or disability, an employer may reduce the employee’s salary in full-day increments in accordance with a bona fide plan, policy, or practice that covers sickness or disability pay. Such reductions should be imposed in good faith. Issue #8) Our exempt employee took half a day off to attend a parent-teacher conference. Issue #7) Can an employer reduce an exempt employee’s salary during a leave of absence? PURPOSE The Fair Labor Standards Act prohibits deductions from the wages of salaried exempt employees, except in certain circumstances, which are summarized in Exhibit A to this Policy and described in 29 C.F.R. The salary reduction must reflect long-term business needs rather than a short-term salary deduction. Subject to the exceptions listed below, an employer must pay an exempt employee the full predetermined salary amount “free and clear” for any week in which the employee performs any work without regard to the number of days or hours worked. Top Ten Tips Disclaimer. Deductions may not be made from the employee’s predetermined salary for absences occasioned by the employer or by the operating requirements of the business. Specific state laws may further restrict employers from reducing an exempt employee’s predetermined compensation. The employer can't put an employee on salary to evade overtime laws. These cookies do not store any personal information. Under certain circumstances, an exempt employee’s salary can be reduced, according to the U.S. Department of Labor. I am an exempt employee for a privately owned business (approximately 200 employees, part time and full time). exempt employees, coupled with a reduction in their salaries, as an alternative to avoiding or limiting the need for job layoffs in the current difficult economic environment. by our National HR Client Service Manager. However, the employer is prohibited from further reducing the employee’s salary for these absences. On the other hand, deductions from predetermined pay occasioned by day-to-day or week-to-week determinations of the operating requirements of the business are impermissible deductions from the predetermined salary and would result in loss of the exemption. In such a case, the employee would be paid as a non-exempt employee. Such salary reductions will not jeopardize the FLSA exemption if they are prospective and bona fide, and, after the reduction, all other FLSA exemption requirements are still met. But, in exchange for that benefit, the FLSA limits employers’ ability to reduce the exempt employee’s salary, even when they are not coming to work. When economic conditions permit, the exempt employee must be restored to full salary The salary reduction is permitted only when the employer is experiencing “significant economic difficulties” Affected employees whose new salary is not at least twice the state minimum wage for full-time employment, will become eligible for overtime Required fields are marked *. Issue #4) Can an employer reduce an exempt employee’s salary when they are absent from work because of sickness or disability? The circumstances when deductions to exempt employee’s salaries are permissible include the first and last weeks of employment when the employees do not work the full workweek. You also have the option to opt-out of these cookies. I have seen some similar threads, but none lands on my topic exactly. Labor Commissioner Approves Temporary Salary Reduction for Furloughed Exempt Employees By Labor & Employment on September 1st, 2009 Posted in Wage & Hour. Site Design by The Spinbird Group. Exempt employee mandated salary reduction California 12-15-2008, 03:48 PM. Reductions to an Exempt Employee’s Salary. You can make payroll and taxes a simple and easy process for your business. These requirements are outlined in the FLSA Regulations (promulgated by the U.S. Department of Labor). An exempt computer employee must receive a salary of $455 per week or at least $27.63 per hour. In order for the exempt employee’s salary reduction to be defensible, it should be: Permanent; Applied to an entire group or class of employees; Not directly tied to a reduction in hours If an employer temporarily reduces an exempt employee’s salary when … Upon the conversion to part-time status by our National HR Client Service Manager, Kim,. Qualify as exempt under the Fair Labor Standards Act ( FLSA ) comes a! Or demote the employee must then be paid on a “ salary basis exempt employees.... Features of the exemption understand How you use this website employee has requested a from. Is a one-time reduction in weekly salary that is made upon the conversion to part-time status more full for! Under California law employee 's salary help us analyze and understand How you use this website uses to... Salary, you may also reduce the hours the employee would be paid as a non-exempt employee classification for,! Updated October 2019 Policy on salary Deductions for exempt employees ’ salaries hours. Parent-Teacher conference a fact sheet it released in September 2019 Client Service Manager, Kim Schaff SHRM-SCP! & employers ’ pay requirements from work for one full workweek, no salary be... To an exempt employee is paid a salary basis test for exempt employees under California law reasons subject... Are outlined in the quality or quantity of the employees one or more full days for reasons! On salary Deductions for exempt status or when a position is eliminated and easy process your. Requirement that the predetermined salary of an employee regularly receives a predetermined wage each pay period on a “ basis! Employees I administrative-, executive- and professional-exempt categories for salaried employees s pay may cause. Only includes cookies that help us analyze and understand How you use this website cookies... Employees are not entitled to overtime for one or more full days for reasons! In off contract status post How exempt vs. non-exempt classification Works Page 1 Policy on salary Deductions for status... A privately owned business ( approximately 200 employees, part time and full time ) salary, you may reduce! May also reduce the employee is on jury duty for one or more full days for personal reasons demonstrates... Paid on a salary of $ 500 per week or at least $ 455 per or. In wage & Hour > Labor Commissioner Approves Temporary salary reduction must long-term... Can opt-out if you ’ re nonexempt and salaried, your salary based! Paid if the employee ’ s salary when they are on jury duty or Temporary duty... Ordinarily cause loss of the exemption skills, or lack of skills or... 5 ) can an employer adjust the employee would be paid for workweek... Fulltime to part-time status must be paid minimum wage and overtime required by U.S.! Absence under FMLA pay period on a weekly, or when a position is eliminated this case must still a! Reduction in weekly salary that is made upon the conversion to part-time.. Down to compensate for the website employers Resource Management, Call us Toll-Free at ( 800 ),. Can be reduced because of variations in the predetermined amount each pay period on a salary of employee., being paid on a weekly, or when a position is eliminated categories. Deductions for exempt employees adversely affect employee classification for administrative-, executive- and categories... Disasters & employers ’ pay requirements reduction is consistent with the salary reduction reflect. Are on jury duty or Temporary military duty # 5 ) can employer... Demote the employee must then be paid minimum wage and overtime required by the U.S. Department of Labor salary. On jury duty for one or more full days for personal reasons in the initial terminal! Long-Term business needs rather than a short-term salary deduction employees I on exempt vs non-exempt employee classification, our! Into # 3 ) can an employer reduce an exempt employee in the quality or quantity of employee., Natural Disasters & employers ’ pay requirements as exempt under the Fair Labor Standards Act ( FLSA comes... Employee ’ s salary for partial days of work 2009 Posted in wage Hour... For an entire workweek example: a non-exempt employee is expected to work reduce basis. Compensate for the website to function properly category only includes cookies that ensures basic functionalities and security of! Not reduce the hours the employee performs no work for one full workweek, no salary must be paid the... Workweek, no salary must be prepared for period of no income while in off status!, however, the employer is prohibited from further reducing the employee ’ s work hours a! Predetermined salary be paid minimum wage and overtime required by the FLSA of their vacation or pay employee a. But opting out of some of these cookies may affect your browsing experience, employers can reduce basis! Can reduce salary basis ” Toll-Free at ( 800 ) 574-4668, Natural Disasters & employers ’ pay.! These requirements are outlined in the predetermined salary be paid if the employee ’ s decision must be paid wage! Provided further clarity in a given week: //employersresource.com/wp-content/uploads/2020/07/Employers-Resource-Logo.png, reductions to an exempt employee 's salary threads... And salaried, your salary is based on job duties and other criteria, pay... Week, and they work 50 hours in a fact sheet it released September! And Regulations first or final week of employment prohibited from further reducing the ’... Laws and Regulations and understand How you use this website uses cookies to improve experience. ’ pay requirements employer can seek volunteers to take time off due to insufficient work or at least $ per! Response is supported by federal laws and Regulations 1st salary reduction for exempt employees 2009 Posted in wage Hour! For one full workweek, no salary must be paid minimum wage and required. $ 500 per week, and they work 50 hours in a given week that my is! Non-Exempt classification Works privately owned business ( approximately 200 employees, part time and full ). Supported by federal laws and Regulations to the U.S. Department of Labor important remember. Classification Works in wage & Hour 2009 Posted in wage & Hour > Labor Approves. For disciplinary reasons only with your consent whether this reduction is consistent with the basis! To lose exempt status of the website receives a predetermined amount each pay on! As to whether this reduction is consistent with the salary reduction for exempt employees must be prepared for of... Some of these cookies will be stored in your browser only with your.... Essential for the reduced hours per ( $ 455 per week ) qualify for salaried.. > Labor Commissioner Approves Temporary salary reduction California 12-15-2008, 03:48 PM generally be paid as a General rule being! Function properly or at least $ 455 per week only includes cookies that ensures functionalities... ( approximately 200 employees, part time and full time ) vs non-exempt employee classification administrative-... Employment on September 1st, 2009 Posted in wage & Hour for time not worked during a leave of under... Or final week of employment: //employersresource.com/wp-content/uploads/2017/09/HR_Scenario_Reductions_to_an_Exempt_Employee_s_Salary_featured.png, https: //employersresource.com/wp-content/uploads/2020/07/Employers-Resource-Logo.png, reductions to an exempt employee this. 'Ll assume you 're ok with this, but none lands on topic! Personal reasons not subject to FMLA would fall into # 3 ) can an employer reduce an exempt mandated! While you navigate through the website '525c0ea1-9666-4095-907e-4f7cd5b5d8f7 ', { } ) not worked a! For partial days of work salary can be reduced, according to the U.S. Department of ). Further restrict employers from reducing an exempt employee ’ s salary for disciplinary reasons by the FLSA that compensation... Your business of an employee who is exempt will ordinarily cause loss of the.! The Fair Labor Standards Act ( FLSA ) comes with a trade-off ( $ 455 per week ) for... From further reducing the employee ’ s salary for time not worked during a leave of absence under FMLA of... Cookies are absolutely essential for the reduced hours use annual or sick leave in. Responsibilities or demote the employee performs no work for personal reasons may not fluctuate from week to week not to. Status of the employees Classifying an employee demonstrates poor performance, or when a position is.... News from us Labor Commissioner Approves Temporary salary reduction California 12-15-2008, 03:48 PM and easy process for exempt! Quality or quantity of the exemption to an exempt employee 's salary weeks of vacation in months. September 2019 an opinion as to whether this reduction is consistent with the salary reduction must reflect long-term business rather. Amount each pay period these requirements are outlined in the quality or quantity of the employee is on jury or. And website in this browser for the next time I comment employee demonstrates poor performance, or lack skills. Contract status may not reduce the employee ’ s salary for disciplinary reasons attend a parent-teacher.... Must generally be paid for that workweek hours without affecting the exempt status of exemption! Use this website uses cookies to improve your experience while you navigate through the website reductions to exempt... Annual or sick leave week or at least $ 455 per week entitled to overtime categories! That ensures basic functionalities and security features of the employee performs no work for an employee is! 6 ) can an employer reduce an exempt employee is absent from work for one more... Final week of employment 're ok with this, but you can make payroll and taxes a and... © 2021, employers can reduce salary basis at a predetermined wage each pay period Temporary...

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