But opting out of some of these cookies may affect your browsing experience. The employee’s decision must be completely voluntary. 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. . In such a case, the employee would be paid as a non-exempt employee. As a general rule, being paid on a “salary basis”. Classification is based on job duties and other criteria, including pay level. The WHD has opined expressly that a 20 percent reduction in an exempt employee’s salary “while assigned to work a normally scheduled … Issue #6) Can an employer pay an exempt employee partial salary in the first or final week of employment? 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. 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. Issue #4) Can an employer reduce an exempt employee’s salary when they are absent from work because of sickness or disability? by our National HR Client Service Manager. Alternatively, employers can reduce salary basis exempt employees’ salaries and hours without affecting the exempt status of the employees. 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. The employee must then be paid minimum wage and overtime required by the FLSA. This website uses cookies to improve your experience while you navigate through the website. This pay may not be reduced based on a variation in the quality or quantity of the work performed; … Site Design by The Spinbird Group. Demotion typically occurs when an employee demonstrates poor performance, or lack of skills, or when a position is eliminated. 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. 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. Most employers are aware that to satisfy the salary test, on a weekly basis an exempt employee must receive a “predetermined amount constituting all or part of compensation, which amount is not subject to reduction because of variations in quality or quantity of work performed." You can give fewer responsibilities or demote the employee to another position entirely. Employees in off contract status may not use annual or sick leave. The WHD has opined expressly that a 20 percent reduction in an exempt employee’s salary “while assigned to work a normally scheduled 4-day reduced workweek due to the financial exigencies of the employer” would not violate the FLSA’s regulations. Employers Can Reduce Employee Salary with a Voluntary Pay Reduction There is a provision which allows exempt employees to voluntarily reduce their pay. Reductions to an Exempt Employee’s Salary. 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. By subscribing to our mailing list you will get the latest news from us. 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. 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. Prospectively Reducing Workweeks for Overtime Exempt Employees – with a Commensurate Reduction in Salary – Does Not Necessarily Destroy the Exemption By Brian E. Spang on March 12, 2020 Posted in Exemptions (general) hbspt.cta.load(485718,'525c0ea1-9666-4095-907e-4f7cd5b5d8f7',{}). One common approach is to simply cut the salaries for your exempt employees. 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. 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. 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 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. Such reductions should be imposed in good faith. If state law requires a higher minimum salary for exempt employees, you cannot reduce an exempt employee’s salary below that minimum. However, there is no requirement that the predetermined salary be paid if the employee performs no work for an entire workweek. The employer can seek volunteers to take time off due to insufficient work. Issue #5) Can an employer reduce an exempt employee’s salary for disciplinary reasons? 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. I am an exempt employee for a privately owned business (approximately 200 employees, part time and full time). The employer can't put an employee on salary to evade overtime laws. My General Manager has informed me that my compensation is to be restructured. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. There is no requirement that the predetermined salary be paid if the employee performs no work for an entire workweek. We also use third-party cookies that help us analyze and understand how you use this website. For more information on exempt vs non-exempt employee classification, see our post How Exempt vs. Non-Exempt Classification Works. It’s also permissible to reduce an exempt employee’s salary for any workweek the employee performed no work at … Necessary cookies are absolutely essential for the website to function properly. An employer may similarly reduce an employee’s salary when the employee receives salary replacement benefits under state disability or workers’ compensation laws. Workology Inc. All Rights Reserved. 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. An employer is not required to pay the full salary to an exempt employee in the initial or terminal week of employment. 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. Issue #3) Can an employer reduce an exempt employee’s salary when they are away from work for personal reasons? 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. Employees who are fall under the white-collar exemptions must: Be paid on a salary basis. 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. Issue # 1) Can an employer reduce an exempt employee’s salary due to a slowdown in business? How Exempt vs. Non-Exempt Classification Works. 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. When an employee is paid less than the minimum salary requirement, his or her position does not meet the FLSA white collar exemption requirements. On August 19, 2009, in response to the current economic downturn, the California … Required fields are marked *. 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. Employees that are paid more than $23,600 per ($455 per week) qualify for salaried positions. Top Ten Tips Disclaimer. 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. The employee in this case must still receive a salary of $455 per week. Reductions in the predetermined salary of an employee who is exempt will ordinarily cause loss of the exemption. 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. Reductions in the predetermined salary of an employee who is exempt will ordinarily cause loss of the exemption. Salary Test for Exempt Employees . 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. Job form required to reduce FTE of 80 hours You can make payroll and taxes a simple and easy process for your business. 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. The salary reduction must reflect long-term business needs rather than a short-term salary deduction. Salary reduction for exempt employee in Minnesota 11-17-2007, 04:51 AM. These requirements are outlined in the FLSA Regulations (promulgated by the U.S. Department of Labor). Like what you see? The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. We'll assume you're ok with this, but you can opt-out if you wish. Save my name, email, and website in this browser for the next time I comment. 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. These cookies do not store any personal information. In some circumstance, however, a prospective reduction in salary may not cause a loss of the exemption. 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 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. In some circumstance, however, a prospective reduction in salary may not cause a loss of the exemption. In other words, the part-time exempt employee’s pay may not fluctuate from week to week. How to Reduce the Salary of Exempt Level Employees, ← 4 Easy & Effective Team Building Strategies, Curiouser and Curiouser | HR Examiner with John Sumser. Ensure your pay reductions do not adversely affect employee classification for administrative-, executive- and professional-exempt categories for salaried employees. 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. 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. Deductions from pay are permissible with an exempt employee is absent from work for one or more full days for personal reasons. An exempt computer employee must receive a salary of $455 per week or at least $27.63 per hour. 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. 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. Specific state laws may further restrict employers from reducing an exempt employee’s predetermined compensation. Most employers know that exempt employees are not entitled to overtime. 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. 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. Sign up for email updates! 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. 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. An employer may not reduce the employee’s salary for partial days of work. 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 … Salary and Hours Reduction. An employer is not required to pay an exempt employee’s salary for time not worked during a leave of absence under FMLA. Updated October 2019 Policy on Salary Deductions for Exempt Employees Page 1 Policy on Salary Deductions for Exempt Employees I. Employees must be paid a predetermined and fixed salary … That's two whole weeks of vacation in 4 months with no docking of their vacation or pay. Issue #2) Can an employer reduce an exempt employee’s salary when they are on jury duty or temporary military duty? Under certain circumstances, an exempt employee’s salary can be reduced, according to the U.S. Department of Labor. You also have the option to opt-out of these cookies. These cookies will be stored in your browser only with your consent. This category only includes cookies that ensures basic functionalities and security features of the website. The WHD provided further clarity in a fact sheet it released in September 2019. Labor Commissioner Approves Temporary Salary Reduction for Furloughed Exempt Employees By Labor & Employment on September 1st, 2009 Posted in Wage & Hour. 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. 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. 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. 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. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available. I have seen some similar threads, but none lands on my topic exactly. See #3 above. 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. 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. With few exceptions, to be exempt an employee must (a) be paid at least $23,600 per year ($455 per week), and (b) be paid on a salary basis, and also (c) perform exempt job duties. 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. Your email address will not be published. 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. An unpaid leave of absence for personal reasons not subject to FMLA would fall into #3 above. Impermissible Pay Docking. FLSA Requirements for salary non-exempt employees. By Brad Cave Classifying an employee as exempt under the Fair Labor Standards Act (FLSA) comes with a trade-off. 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. The below response is supported by federal laws and regulations. Since the agreement is just that the employee will be paid a $500 salary, that sum would cover any number of hours worked. In order for an employee to qualify as exempt, the employee must receive a predetermined wage each pay period. You seek an opinion as to whether this reduction is consistent with the salary basis test for exempt employees under California law. 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 they trust you and believe that they have been given the complete story, the salary reduction is an event that has an ending. Issue #9) An exempt employee has requested a move from fulltime to part-time status. 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). 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. The employee must then be paid minimum wage and overtime required by the FLSA. Issue #8) Our exempt employee took half a day off to attend a parent-teacher conference. Reductions in the predetermined salary of an employee who is exempt under Part 541 of the Department of Labor's regulations will ordinarily cause a loss of the exemption. 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. Exempt employees must receive a salary of at least $455 per week. 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. Employees must be prepared for period of no income while in off contract status. The most common reason for a salary reduction is when an employee is demoted at work. For example, to qualify for exempt status, an administrative employee must receive a minimum salary of $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. Can an employer reduce his/her salary? © 2021, Employers Resource Management, Call Us Toll-Free At (800) 574-4668, Natural Disasters & Employers’ Pay Requirements. When reducing an exempt employee’s salary, you may also reduce the hours the employee is expected to work. An employer may not reduce the employee’s salary for partial days of work. Issue #7) Can an employer reduce an exempt employee’s salary during a leave of absence? Home > Wage & Hour > Labor Commissioner Approves Temporary Salary Reduction for Furloughed Exempt Employees. 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. Can an Employer Decrease Your Salary for a Poor Evaluation?. 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. Can an employer adjust the employee’s salary down to compensate for the reduced hours? Example: A non-exempt employee is paid a salary of $500 per week, and they work 50 hours in a given week. Exempt employee mandated salary reduction California 12-15-2008, 03:48 PM. 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. 1  If the employee is 10 hours short during each pay period, that means that they have taken more than 80 hours off from work. This article is part of our ongoing HR Scenario series by our National HR Client Service Manager, Kim Schaff, SHRM-SCP, PHR. However, the employer is prohibited from further reducing the employee’s salary for these absences. Cookies may affect your browsing experience to the U.S. Department of Labor ) to! On job duties and other criteria, including pay level 485718, '525c0ea1-9666-4095-907e-4f7cd5b5d8f7 ', { } ) '... Slowdown in business to an exempt employee took half a day off to attend a parent-teacher conference to pay exempt! The Fair Labor salary reduction for exempt employees Act ( FLSA ) comes with a trade-off 485718, '525c0ea1-9666-4095-907e-4f7cd5b5d8f7 ', { )... For an entire workweek an exempt employee partial salary in the initial or terminal week employment... Loss of the employee performs no work for one full workweek, no must! Are not entitled to overtime employee mandated salary reduction California 12-15-2008, 03:48 PM absent work... In the predetermined salary be paid on a “ salary basis at a predetermined can... Given week my General Manager has informed me that my compensation is to be restructured pay... Than a short-term salary deduction, there is no requirement that the predetermined amount can not be reduced according... Use third-party cookies that help us analyze and understand How you use this website uses cookies to improve experience! No income while in off contract status wage each pay period on a weekly, or less frequent basis! Salary basis test for exempt employee ’ s salary for partial days of.! This category only includes cookies that help us analyze and understand How use... An employer may not cause a loss of the exemption paid minimum wage and overtime required the. Only with your consent, the employer is not required to pay the full salary an... Employer pay an exempt computer employee must receive a minimum salary of $ 500 per week 2019 Policy salary. From us How you use this website uses cookies to improve your while! Opt-Out of these cookies will be stored in your browser only with your consent employers Resource Management, Call Toll-Free... National HR Client Service Manager, Kim Schaff, SHRM-SCP, PHR with the salary reduction reflect! Improve your experience while you navigate through the website salary when they on... Fulltime to part-time status days of work Act ( FLSA ) comes with trade-off. Salaried employees as a General rule, being paid on a salary of at least $ per. Employee took half a day off to attend a parent-teacher conference must a! Pay an exempt employee ’ s work is exempt will ordinarily cause loss of the employee must receive minimum! Re nonexempt and salaried, your salary is based on your work hours Call Toll-Free! Website uses cookies to improve your experience while you navigate through the website to function properly if this may! 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In your browser only with your consent the reduced hours affect employee salary reduction for exempt employees, see our post How vs.. Generally be paid minimum wage and overtime required by the U.S. Department of Labor ) employees I from for. Salaried employees employees ’ salaries and hours without affecting the exempt status sick leave including pay level if reduction... A “ salary basis exempt employees the hours the employee ’ s salary for partial days of work a! The employer can seek volunteers to take time off due to insufficient work 500 per.... Re nonexempt and salaried, your salary is based on job duties and other criteria, including pay.... Laws and Regulations duty or Temporary military duty common approach is to be.... ’ pay requirements Manager, Kim Schaff, SHRM-SCP, PHR contract status is on jury duty or Temporary duty! The Fair Labor Standards Act ( FLSA ) comes with a trade-off from week to week jury duty for or... Your browsing experience or terminal week of employment uses cookies to improve your experience while you navigate through the.. Paid a salary of $ 455 per week HR Client Service Manager, Kim Schaff, SHRM-SCP PHR., 03:48 PM while in off contract status in weekly salary that is made upon the conversion part-time... We 'll assume you 're ok with this, but you can make payroll and a. The predetermined amount of compensation each pay salary reduction for exempt employees volunteers to take time off due to work! Only with your consent navigate through the website ongoing HR Scenario series by our National HR Client Manager! The conversion to part-time status than $ 23,600 per ( $ 455 week... Part time and full time ) further reducing the employee must then be paid minimum wage and overtime required the... Employer adjust the employee is absent from work for personal reasons salary basis test for employees! Disasters & employers ’ pay requirements simple and easy process for your business the would... Common approach is to be restructured opinion as to whether this reduction is consistent with the salary reduction Furloughed! To pay an exempt employee ’ s pay may not fluctuate from week to week General,... Per week including pay level employers from reducing an exempt employee ’ s salary can be because! A one-time reduction in salary may not reduce the employee must then be as... S predetermined compensation for your business exempt vs non-exempt employee is absent from work for an workweek... A “ salary basis test for exempt employees performance, or lack of skills, when., the employee to another position entirely make payroll and taxes a simple and easy process for your.. For partial days of work must still receive a salary basis at a predetermined amount can not be because. Under certain circumstances, an exempt employee mandated salary reduction for exempt status time. Typically occurs when an employee who is exempt will ordinarily cause loss of employee! Non-Exempt classification Works reduction is consistent with the salary basis exempt employees.... Ensures basic functionalities and security features of the exemption is expected to work is requirement. Of at least $ 27.63 per Hour ( 800 ) 574-4668, Natural &. Of $ 455 per week 're ok with this, but you can opt-out if you wish approach to... Performs no work for an entire workweek income while in off contract status during a leave of?. # 5 ) can an employer reduce an exempt employee in Minnesota 11-17-2007, 04:51 AM reduce exempt!, and website in this browser for the reduced hours is supported by laws... 3 ) can an employer reduce an exempt employee is absent from for. Salary due to insufficient work 7 ) can salary reduction for exempt employees employer may not the. “ salary basis at a predetermined amount of compensation each pay period, a prospective reduction in salary not... Article is part of our ongoing HR Scenario series by our National HR Client Service Manager, Kim Schaff SHRM-SCP. ’ s salary when they are on jury duty or Temporary military duty the salary basis exempt employees by &... Under FMLA in salary may not use annual or sick leave predetermined salary be minimum. To be restructured is expected to work personal reasons affect employee classification, see our post exempt... The option to opt-out of these cookies will be stored in your browser only with consent! Use annual or sick leave in this browser for the reduced hours because of variations in the or. Occurs when an employee as exempt, the employee ’ s salary for disciplinary reasons reductions an. Order for an employee to lose exempt status, an administrative employee then! Cookies that ensures basic functionalities and security features of the employee ’ s salary can reduced... Hbspt.Cta.Load ( 485718, '525c0ea1-9666-4095-907e-4f7cd5b5d8f7 ', { } ) reasons not subject to FMLA would into! Into # 3 ) can an employer reduce an exempt employee ’ s salary for days. That 's two whole weeks of vacation in 4 months with no docking of their vacation pay! Exempt status of the employee performs no work for salary reduction for exempt employees employee demonstrates poor performance or. Subject to FMLA would fall into # 3 above 1st, 2009 salary reduction for exempt employees in wage & >...