Monday, November 10, 2008

Risks abound for businesses considering unpaid time off to save costs

Workforce Management and SlashGear both report that Dell is encouraging its employees to take an unpaid week off as a means to cut costs and avoid layoffs. Dell is not the only company considering such measures. Companies are going to four-day work weeks, or weeks off, to save enough cash to avoid having to cut staff. Times are getting scary, and many businesses are considering these drastic measures to meet their bottom lines while keeping as many people employed as possible. They assume, probably correctly, that employees would rather work less and keep their jobs than face layoffs.

These measures, however, must be carefully considered and implemented to avoid any wage and hour complications. One of the cornerstones of the FLSA’s exemptions is that the employee must be salaried. By definition, a salaried employee receives the same predetermined amount of money for each week worked. Employers can jeopardize exemptions by docking employees’ pay for hours or days missed from work. If an employer reduces an employee’s pay for hours or days missed in a week, the employee is not receiving a standard predetermined amount for all work performed during the week, and therefore no longer salaried. If an employee is not salaried, he or she cannot be exempt. Exemptions are bad things to lose, because it would make an employee eligible for overtime.

Thus, paying an employee four-fifth’s of his or her salary for a four-day work week might jeopardize that employee’s exemption. The employee is no longer receiving a static amount for all work performed during the week. The Department of Labor would probably take the position that the employer is treating the employee as hourly by reducing the salary by the hours missed during the week.

If, however, an employee is taking an entire week off, the employer can withhold an employee’s salary for that entire week without putting an exemption at risk. In that case, the employee is still receiving the same static weekly amount for all weeks in which any work is performed.

The bottom line – if your organization is considering reducing work hours to cut costs, consider doing so on a weekly basis, and not on a smaller increment. Also, discuss these measures with counsel to ensure that all legal implications are covered.