Under the federal Fair Labor Standards Act (FLSA), an employer can generally reduce an exempt employee’s salary for certain COVID-19-related reasons. However, the reduction cannot be made after the fact or based on the employer’s day-to-day or week-to-week needs. In other words, exempt employees must be paid their predetermined salary for any workweek in which the employee provided any services.
The FLSA requires most businesses to pay employees 1.5 times their regular hourly rate for hours worked in excess of 40 in a workweek; unless employees fall under an exemption. The most common exemptions are administrative, executive, and professional, which are collectively called exempt or salaried employees. Additionally, minimum salary and job duties requirements must be met for an employee to be classified as exempt.
The Department of Labor regulations states that exempt employees are generally paid for the job duties they perform rather than the hours they work. The salary cannot change from week to week or otherwise be tied to hours worked.
Employees should clearly understand that the reduction in their salaries are not related to reduced hours of work. For example, exempt workers should not be told that their salary will be reduced by 20 percent and, as a result, they only need to work four days per week. Instead, employers should communicate that salaries are being reduced as a business measure and that exempt workers are still expected to work as many hours as needed to complete their work.
Importance of maintaining employee exempt status
Employees are required to meet the FLSA job requirements tests in order for employees to maintain exempt status. For example, if an employee qualifies for exempt status by supervising at least two full-time employees (or the equivalent hours of work), they may no longer qualify as exempt if their job requirements change. Another example, if an exempt outside salesperson cannot visit customers because of COVID-19 restrictions, they may no longer qualify as exempt.
The DOL, however, has stated that certain exempt employees may perform non-exempt duties to meet health or other COVID emergencies. Employers should ensure that employees continue to perform some exempt duties and limit the nature and duration of employees’ nonexempt duties as much as possible.
Open and clear communication with employees is key. Employers should work with legal counsel or human resources to make sure employees understand their role in meeting the needs of the business while maintaining legal compliance.
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