FLSA and Furloughs: How the Sequester Affects You

FLSA and Furloughs: How the Sequester Affects You

With sequestration affecting many of our clients, we’ve had numerous questions regardingSequester
furloughs, salary adjustments, salaried vs. hourly employees and more. Questions include the following:

  • What is the best way to communicate furlough expectations and HR Compliance?
    • How does this affect my remote workers?
  • How will a furlough affect my salaried/exempt employees?
    • Will they lose their status for shortened work weeks?
  • How does my payroll department address salary cuts?
    • Can I make these salary cuts permanent?

We’ve pulled some answers together to help you through this not so simple process.

Furlough Communication and HR Compliance

Communication is key to ensuring that morale remains intact during an economic downturn. We all want to avoid and limit layoffs. The best way to do this is to implement cost cutting measures that may include: temporary shut downs and/or a furlough policy, a four-day work week, voluntary or mandatory unpaid leave policies that will encompass a portion of the fiscal work year. Communicate with your employees. Make sure that all questions are answered in a timely fashion. Help alleviate fears. Provide as much advance notice as is possible and according to DOL regulations, laws and other policies.

Furlough of Hourly Workers

If you employ hourly workers, their furlough is fairly cut and dry. By law, if hourly workers do not work, they do not need to be paid. The only caveat to this is to ensure that any specific contracts and/or collective bargaining agreements are adhered to.

“Furloughing hourly workers is relatively simple, so long as any contracts and collective bargaining agreements are complied with. By law, if hourly workers don’t work, they don’t need to be paid. And, the U.S. Department of Labor (DOL) has even announced that the Worker Adjustment and Retraining Notification Act (WARN) won’t apply to layoffs caused by sequestration.”

Source– Corporate Counsel

Salary Reduction as a Result of Reduced Workweek

Question(s): Will I have to change the status of a salaried employee to non-exempt due to a shortened work week because of the sequester?  Short Answer: No…

Does this mean that exempt/salaried employees who are furloughed for a day here and there, become non-exempt employees and entitled to overtime pay when they work overtime? Short Answer: No…

Determine Which Employees are Salaried/Exempt

DOL has said if a company decides in advance, and with no improper motive, to reduce costs by shortening the workweek, the company may also reduce the salaries of exempt employees by any amount it chooses. One caveat is that those salaries must remain above the minimum FLSA thresholds for exempt employees ($455 per week). In the case discussed in one DOL opinion letter, for example, the employer reduced the fourth workweek of each month from five to four days with no effect on its exempt employees’ status. DOL also has blessed reducing each workweek from five days to four days and reducing salaries by one-fifth as well. (But here’s another very important caveat: In order to pass muster, such a furlough must not be ad hoc. It must be announced in advance and must be scheduled to last for at least two or three months. This type of reduction may not be used for occasional unplanned and transitory periods of low workload.)

The DOL’s Field Operations Handbook states that due to an event, such as the current sequester, a reduced workweek/salary deduction does not override exempt status for that employee. See the official regulation below.

Department of Labor, Field Operations Handbook

Rev. 661 dated 11/29/2010 22g11 – 22g13

A prospective reduction in the predetermined salary amount to not less than the applicable minimum salary due to a reduction in the employee’s normal scheduled workweek is permissible and will not defeat the exemption, provided that the reduction in salary is a bona fide reduction that is not designed to circumvent the salary basis requirement (e.g., a 20 percent reduction in an exempt employee’s salary while assigned to work a normally scheduled four-day reduced workweek due to the financial exigencies of the employer and/or to avoid layoffs would not violate the regulations as long as the reduced predetermined salary amount is at a rate that is not less than the applicable minimum salary of $455 per week).

Important Note— Exempt employees do not need to be paid for a week in which they did not work at all. If the exempt employee performs any work during a work week they must be paid. This can be a gray area in our day of remote worker polices, laptops, Smartphones, etc. Communicate clearly with exempt employees that they are not to so-much-as to check their email from home or while away from the office during a full-week furlough. A clear policy regarding remote work should be included in the furlough notice.

Health Plans, PTO and Vacation Time
The FLSA does not require employers to provide PTO or vacation time. With that in mind, if an employer voluntarily offers these benefits, the employer can require that an employee use their PTO and/or vacation time on a furlough day. As long as the employer compensates the employee during that pay period denoting PTO or vacation time, regular work days and PTO/vacation time may be used.

Be sure to check with your employee benefits department regarding thresholds that are to be met for health plans and how those may change during a furlough.
Payroll Changes and Salary Cuts
If a predetermined, long-term basis furlough is necessary, your payroll department can more easily make changes to your HRIS. If your furlough has not been determined, please contact one of our Payroll experts for advice.
If your organization determines that more permanent wage cuts are necessary, such as a one-time percentage reduction for all employees; the employer may do so as long as the exempt employees’ salary remain at the $455 or above level (see above note from the DOL Handbook). Keep in mind that a one-time cut such as this may be tied to pensions and affect employees for years to come.
More Sequester Questions?
Do you have more questions that weren’t answered above? Please contact a seasoned FosterThomas Human Resources specialist to assist you.

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About the Author

FosterThomas is a leading professional services company that provides solutions in the areas of Human Resources Consulting and Outsourcing, HR Staffing, Outsourced Recruiting, Employee Benefits Brokerage, Payroll Implementation and Services, HR for Government Contractors, Business Insurance, HR Compliance and Risk Management. We help organizations by providing solutions designed with a focus on cost containment strategies and increasing HR efficiency. FosterThomas HR Consulting was established in 1993 with offices in Annapolis, Maryland (Corporate), McLean, Virginia and Raleigh, North Carolina. Today, FosterThomas occupies a unique position as a full service provider of HR services.

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