Exempt Employee Furlough and FairPay Regulations

In an effort to costs, many employers are considering furloughs – leave – for employees. However, furloughs can be a legal minefield, if not handled properly, according to the SHRM, the Society of Human Resource Management.

 

According to the U.S. Department of Labor regulations issued in 2007, an exempt salaried is entitled to his or her full in any in which the employee does any work at all – regardless of the number of that the employee works.

 

Under the federal FairPay regulations , an exempt employee who works for 10 minutes during the week is entitled to the same salary as if he or she worked 100 hours during the week.

 

Also under the FairPay regulations, if an exempt employee is ready, willing and able to work on a particular day, but no work is available, the employer must pay the worker for that day. For example, if the business in Kentucky is closed by a massive power outage, exempt employees must still be paid for that day. Hourly or non-exempt salaried employees need not be paid, under the FLSA or Fair Labor Standards Act.

 

This means that an employer cannot an exempt employee for one or two days. Even if there is no work, or the employer asks the employee to remain at home and take the , the employee must be paid his or her entire salary for any payroll week in which the employee performs any work at all.

 

However, there is a way for employers to save money by furloughing exempt employees – as long as the furlough is for the entire payroll week. As long as the furloughed employee does no work whatsoever during the payroll week – including working from home – the employee need not be paid that week.

 

The complexity of these regulations is illustrated by the fact that even experts do not always agree on the interpretation of the law. One source at SHRM, who asked to remain anonymous, suggested that furloughing the employee for an entire payroll week would not be legal, if the company was shuttered. But, if the company continues to operate as usual, the unpaid furlough would be legal.

 

Despite dissenting opinions, most experts agree that as long as the exempt employee does no work whatsoever during the payroll week, the employee need not be paid.

129 thoughts on “Exempt Employee Furlough and FairPay Regulations

  1. Hi Amelia,

    Thanks for such an informative blog! I have read every single comment and response. You would think I would be clear on exempt status and furloughs by now, but I have found myself a little confused.

    If an employer reduces all exempt person’s salaries by 10% for example and then offers them 5 days off to take any time they want during the year (as kind of a way to offset the reduced salary), is this ok? The employees would still get their full paycheck even if they do take a furlough day, but their paychecks are going to be 10% less every week.

    Thanks again!

  2. Hi Joanna! We completely understand your confusion — this is a comlex topic. Yes, the practice you mention is legal. The employer could simply reduce exempt employees salaries by 10% across the board without any reduction in hours worked.

    However, this employer is generously giving exempt workers 5 extra days off throughout the year. That is completely legal, as long as the employees are paid the new, lower salary every week. If the employer paid an exempt worker more during weeks in which he worked a full week, and less during other weeks, that would be unlawful. It is the fluctuation in salary, not the reduction, that is illegal. HTH, and thanks for reading the blogs!~ Amelia

  3. Hello Amelia,

    Not sure if you are still answering questions on your Blog. I have read all of you posts above and still have a question, believe it or not. I am in ID, I am an exempt employee. With the downturn in the economy I am being asked to reduce my hours to 12 hours/week. It is my understanding that this would be of no use to the employer. They would still have to pay me for the full week if I am willing to work. They have asked other exempt employees in the past to reduce their hours or take the severance package. Are they required to offer me the severance package as well? or can they treat each employee differently? There is a severance package written into our P&P regarding Layoff.

  4. Hi Marie! You are correct that an exempt employee who works 12 hours per week at the employer’s request is still entitled to her entire salary for the payroll week.
    There are two possibilities here: 1) That you are not actually an exempt employee. Some salaried employees are or can be non-exempt. As such, they are entitled to overtime 2) That the employer is offering you a part-time, hourly position working 12 hours per week.

    We will assume that this is not an action based on your performance, but due to economic conditions. If the employer has offered severance packages to other employees, and it is written into the policies & procedures, it may very well be illegal discrimination to not offer you a severance package. Especially if you are of a different sex, race, color, religion, etc. from the employees with severance packages. HTH, and thanks for reading the blogs!~ Amelia

  5. I am an exempt employee. Do I have the right to take off on the 4th July with out affecting my salary. I worked 56 hrs last week without over time, which I understand I am expected. But our hourly employyees get time an a half for working on the holiday. What about the exempt employees? It is listed as the companies holidays in the handbook. But nothing about exempt employees. I also can not get a week end off call although it is in my job description. When i ask was told to just forget that part???

  6. Hi Sally Mae! You may not be entitled to payment for the holiday, if it was your choice to take off. The federal FLSA or Fair Labor Standards Act requires that an exempt employee be paid his or her full weekly salary, “regardless of the quantity or quality of work”. This means that if the business is shut down one day for the holiday, but you are available and willing to work, you must still be paid your usual salary for the week. (Assuming that you do work at least part of that payroll week.)

    An exempt employee must be paid for any day he or she is ready, willing and able to work. However, an exempt employee need not be paid when he or she takes the day off for personal business. If the business was open on July 4th, and the employer had work available for you, and you choose not to work, then you were not available for work, and you are not entitled to payment for that day. If you requested the day off to spend with your family or celebrating, again, you were not willing or not available to work, and you are not entitled to payment for that day.

    What holidays and benefits nonexempt employees receive is irrelevant. It is lawful for the employer to have one set of benefits for exempt employees and another set for nonexempt employees. Many, many employers give hourly employees holidays off but require exempt employees to work on the holiday. In fact, many employers intentionally schedule exempt employees to work on holidays, to save money.

    We agree that in an ideal world, no one should have to be on call every weekend. Unfortunately, the employer sets the rules and the employer can change them at any time without consulting the employee. In this case, the employer has decided that you will be on call every weekend. This is probably not fair, but it is legal. There are various solutions you can try, to solve this problem. You can come up with an alternate plan for on-call duty and try to convince your supervisor. You can put up with it for now and hope the situation improves in the near future. Or, you can look for another job with better working conditions. HTH, and thanks for reading the blogs!~ Amelia

  7. In Virginia, does a company have to give notice before putting exempt employees on furlough, even when some are still working? Or can they put you on furlough the very next day?

  8. Hi John! Unfortunately there is no Virginia law that requires an employer to inform exempt employees days or weeks in advance that they will be put on furlough. For private sector employers, the employee must be informed before the begining of the work day, or paid for that work day. Letting them know one day that a furlough will start the next day is acceptable.

    We are not clear on the meaning of “even when some are still working.” If the exempt employee does any work at all during the payroll week, he or she is entited to payment for the entire week. HTH, and thanks for reading the blogs!~ Amelia

  9. My company has just announced they will have 4 furlough days spread out over the next 4 quarters. This company is a non profit in Maine and I am an exempt employee.

    They claim they are following the State of Maine’s procedures.

    Based on the federal law is this furlough legal?

  10. Hi Bill! Under federal law such an unpaid furlough for exempt employees would not be legal. However, many state and local government agencies are not covered by the federal FLSA or Fair Labor Standards Act. This is what permits state and local governments to furlough employees to meet budget restrictions.

    If the non-profit is covered by the federal minimum wage and overtime law, the FLSA, then exempt employees must be paid their full salary when they are furloughed for a day or two. HTH, and thanks for reading the blogs!~ Amelia

  11. I am an exempt employee in Kentucky. Can my employer deduct PTO time if I am forced to leave early due to business being slow? For example, work 5 hours a day and deduct 3 hours PTO time?

  12. Hi Robin! This is not a good business practice, but it is legal in Kentucky. A Kentucky employer can dictate when an employee uses her vacation time. Under the federal FLSA or Fair Labor Standards Act, an exempt employee who works any portion of the day must be paid his or her usual salary for the day. So even if you had no vacation time left, you would still be entitled to your full salary when you are sent home due to business being slow. However, since you have vacation time, it can be deducted. We agree that this policy sucks, and defeats the whole purpose of giving exempt employees vacation time. It would be different if you were requesting the time off. HTH, and thanks for reading the blogs!~ Amelia

  13. Amelia, thank you for the very helpful response. Perhaps I should take January off and start February with zero PTO time left the year :)

    My employer allows exempt employees to go 20 hours negative on PTO time. Is it legal for them to put me into the negative when sending me home if business is slow?

  14. Hi again Robin! You are very welcome! Actually, taking vacation over the holidays may be a viable option here. At least it will allow you to control when you are off, so that you can use that time to your advantage.

    Unless the employer is doing this to all exempt employees, you should also send out resumes. An employer generally does not treat an exempt employee they value in this way. Since they find your position unnecessary part of the time, they may be planning to eliminate it in the near future. Most companies would send home an hourly employee if it was slow, and require the exempt employee to fill in. The fact that they are sending you (an exempt employee) home for lack of business doesn’t bode well for your continued employment.

    If other exempt employees in the same position are not being sent home, then this may be illegal discrimination based on race, color, sex, national origin etc.

    Forcing you into negative PTO when you are willing to work the full day is a gray area. The employer could do this. However, if you were then terminated or quit, they could only deduct this amount from your final check with your written permission. You would be unlikely to give your permission at this point, and it’s not clear that a mere employee handbook signature would be sufficient. HTH, and thanks for reading the blogs!~Amelia

  15. Can an employer specify furlough days for SOME employees of the company, but not ALL employees of the company? i.e. if a company specifies furlough (no pay) days, can the do it for selective few?

  16. Hi Lee! Yes, it is very common for the employer to furlough some employees and not others, for a variety of reasons. Business may be slow, and the company could decide to furlough 50% of employees. Or, they may opt to keep the sales staff working while furloughing all or almost all of the IT department. A variety of situations make this appropriate.

    The employer cannot commit illegal discrimination when deciding whom to furlough. For example, the employer could not opt to furlough all Asian employees or all Jewish employees.

    Note that (as we mention in the article above) hourly employees can be furloughed for days without pay, but exempt employees must be paid unless they are furloughed for the entire payroll week. (Which may be another reason to furlough hourly employees and not exempt employees.)

    This is a complex issue, so feel free to post additional questions. HTH, and thanks for reading the blogs!~ Amelia

  17. Hi Amelia,
    I am an exempt salaried employee and our company recently emerged from bankruptcy/restructure in Dec. All FT and Salaried people received a phone call this week indicating that the company was requiring us (FT and Salaried) to take 3 days furlough. We were given the choice of picking our three days and if we didn’t, “they” would pick them for us.
    When I asked if I would be receiving something in writing about the furlough from our Executive, I was told, NO, “this cannot be put in writing or email”–??? BIG RED FLAG- IS THIS LEGAL?
    We were told to put our days that we choose on our PTO form and fax them, If we do not pick the three days, they will pick them for us; However we are not to send them via email–I believe the company’s intentions are to say the employee’s are voluntarily taking Furlough–There must be a difference in voluntary and mandatory?? what are the consequences of a company lying about the intention of something like this, especially after bankruptcy restructure and debt forgiveness?

  18. Hi Sue Ellen! Your intuition is absolutely correct. This is illegal. Under the federal FLSA, an exempt employee who is ready, willing and able to work each day of the payroll week, and works at least a few minutes during the payroll week is entitled to her entire salary for the week. (As you probably read in the article above.) However, an exempt employee who is not available for one or more full days, and does no work on those days, need not be paid. The company is trying to set it up so that exempt employees request the unpaid time off. When that happens, it is legal for the employee not to be paid for that day.

    What makes this doubly bad is that the company clearly knows that this is illegal. That is why they are refusing to put it in writing or email. This is extremely unethical. Frankly, we have seldom heard of an abuse this flagrant. Usually, employers make genuine mistakes, rather than intentionally violating the federal wage and hour laws.

    To answer your question, the company could face an investigation by the U.S. Department of Labor over this issue. If they find exempt employees are owed back wages, and the employer does not voluntarily pay them, the DOL can sue them in federal court and require that the company pay courts costs, attorney fees as well as back wages and penalties. It is shocking that any company would take this kind of risk over a few days’ pay. (There are no special penalties against the company because they are coming out of bankruptcy.)

    This company is clearly operating outside the law, and is probably breaking the law in other ways, too. You need to decide if you are going to take a stand here. One option would be to not fight the company about this, but take the 3 days as “unpaid vacation” days and devote your time to looking for a better job.

    Or, you can decide to fight the company on this. If you take that tactic, you should make written notes now of the dates and times of these phone conversations, as well as anyone else who may have been involved or a witness. You should keep a copy of these notes at home. They can be used as evidence.

    Frankly, we can’t offer much hope that going to HR or working within the company will hel because it sounds like the executive at the highest level is involved. Your best bet might be to not request the days off and let them “pick the days” for you. They will probably ask that you sign PTO forms for the dates they pick. You should write on the PTO forms, “I am available to work on these dates and am signing this form under duress because the company requires that I take 3 furlough days.” Keep a copy of the signed PTO forms if you possibly can.

    You can then file a claim for unpaid wages with the U.S. Department of Labor, because you were not paid for those 3 days. Or, the DOL will provide you with a list of attorneys and you can retain one of them to sue the company. But you cannot really take that action until after the furlough days. When you file a wage complaint with the DOL, in many states you have more job protection against retaliation than if you merely complained to someone within the company.

    We also suggest that you contact the nearest office of the U.S. Department of Labor at http://www.dol.gov and discuss this with them. You may not be able to file a wage complaint yet, but they may have other suggestions about how you can handle this. HTH, and thanks for reading the blogs!~Amelia

  19. Even though it appears to be a rather flagrant violation of FLSA, the courts are finding in favor of employers who reduce the pay of exempt employees, force them to use vacation days, or force them to take furlough days (even a single one in a week). Look at Robinson v. Tellabs, or Archuletta v. WalMart Stores Inc.

    The DOL Opinion Letters are the root of the evil here. Has anyone even challenged them? They appear to subjective interpretations of FLSA, some are even contradictory. They open the door for employers to basically do whatever they wish with exempt employees salaries and time off as long as the employers can convince the courts (if they are dragged into courtrooms, that is) that there was some legitimate business purpose. So if a company is grossly mismanged, runs into trouble, and needs to scrounge up some money, the exempt employees are prime targets.

  20. Hi Tamara! You bring up some interesting points. First of all, it has always been legal for an employer to permanently reduced an exempt employee’s salary. It is also legal in nearly every state for the emuployer to force any employee to use vacation time, and even dictate when the employee will use it. These policies are in no way contradictory to the FLSA.

    Robinsonn v. Tellabs was a case brought in state court under the Illinois Minimum Wage Act. That has noting to do with any federal ruling under the FLSA. Archuleta v. Walmart addresssed whether pharmacists are exempt employees or entitled to overtime. Again, that issue has noting to do with whether or not an exempt employee can be furloughed for a single day during the week. We would also caution against basing any judgments or action on a single court case, where the circumstances might be unique.

    We will say that there are two somewhat contradictory trends at work here. The courts are more sympathetic to employers trying to stay in business during these tough economic times. However, the U.S. Department of Labor is stepping up enforcement actions against employers who violate the FLSA. They have even started referring employees with smaller claims to attorneys specializing in employment law, to increase enforcement against employers. So while many exempt employees are being expected to do 2-3 times the work they formerly did, it is not necessarily open season on exempt employees. HTH, and thanks for reading the blogs!~Amelia

  21. I have been reading all the blogs and think my employer has done something illigal but not sure who to go to.
    We were told in December that we must take either 10 days of furlough or use 10 days of our vacation time. I chose to use all furlough using every Friday as a Furlough day so far I have taken 3 furloughs of 10. Today we were told we cannot do that anymore it must be taken in 5 day increments. so I have 7 days left and must take 5 days of non paid furlough and 2 days of vacation. Does something smell funny?

  22. Hi Cynthia! This does smell funny, but it is probably legal — barely. If the employer forced exempt employees to take every Friday off without pay, that would be illegal. But in this case, it is your choice to take Fridays off without pay. You have presumably informed the employer that you were not available to work on those Fridays. An exempt employee is not entitled to payment for any day in which she does no work at all, and is not available for work.
    The employer is taking the more correct approach by furloughing exempt employees for an entire payroll week. But because you were given a choice between taking unpaid time and taking paid vacation, the previous tactic may have been legal. It is always legal for an employer to tell workers they must use their vacation time, and the employer can even dictate when it will be used.
    If you like, you can file a wage complaint with the U.S. Department of Labor at http://www.dol.gov. But our guess is that they will find in the employer’s favor on this one. HTH, and thanks for reading the blogs!~ Caitlin

  23. Thanks for this blog! Very helpful! I have a few questions. My husband is an exempt employee. Works 50+ hours a week. His company is in North Carolina with headquarters in Georgia. They have been furloughing him for the past three years. Every holiday he’s furloughed (Scrooges for sure!), even the day after Easter and Thanksgiving where furloughed. My question is, with them not paying him for holidays legal? or is this one way they are getting around not paying him? Not all furloughs are holidays but for the most part are. They where just going to furlough them Jan. 17th (not a holiday) but it snowed the week before and they where out for two days so they had them furlough one of the two snow days and let them use PTO for the other. They furlough in one day a week mostly unless theres a holiday then it might be two days. As reading through this it seems like him being exempt, he should be getting paid for these days. He works most of these furlough days too. They also furloughed the week after Christmas but that would have been legal if he didn’t work at all that week right? He worked though so they should have paid him for the entire week right?

    I would also like your input on how he can go about asking his employer about this or should we contact someone else? I would hate for him to get in there and them cut his pay and make him work more. That sounds like something they would do. Any advise would be great! Thanks a bunch!

  24. Hi BJ! You are right! First, an exempt employee should be paid his full salary for any day that he works, even if he works only a few minutes that day. The relevant statute is the federal FLSA, the Fair Labor Standards Act. This is the federal minimum wage and overtime law, that permits a salaried employee to be exempt from overtime. In addition, when the exempt employee is ready, willing and able to work, but the employer has no work for him, the employee must be paid his full salary for the day. This applies to most of the days when your husband has been “furloughed.”

    For holidays, if your husband was available to work, and willing to work, he is entitled to payment for that day. If he requested the day off or was not available (for example, because he was out of town visiting family) then the employer would not be required to pay him. If the business is closed for snow, and your husband was ready, willing and able to work on that day, he is entitled to payment. (If he phoned to say that he would not be coming to work, he need not be paid.)

    If he does no work at all for an entire payroll week, he need not be paid for that time. However, if he works any portion of the payroll week, even a few minutes, and is ready, willing and able to work the entire week, he is entitled to payment for the entire week.

    Different rules apply to government employees, but it sounds like your husband works for a business in North Carolina.

    In fact, there are so many “furloughs” that we question whether your husband is actually an exempt employee or not. When an employer treats a worker like a non-exempt employee, he becomes non-exempt, regardless of his primary duties. If that is the case, your husband may be entitled to payment for all the overtime he has worked in the past 2 – 3 years, at 1.5 times his average hourly rate. Basically, the U.S. Department of Labor may find that your husband never was an exempt employee because he is so frequently being given unpaid days off, which the company calls furloughs.

    Normally we suggest that an employee tactfully approach the HR department or employer and request payment. However, there is some risk in doing that. With a violation this flagrant, we suspect that this employer is not reasonable. Ironically, an employee actually has more protection if he goes directly to the U.S. Department of Labor by filing a wage complaint at http://www.dol.gov. They will investigate the complaint and if they find the employee is owed money, they will force the employer to pay back wages. It is illegal for an employer to retaliate against an employee who files a wage complaint in good faith by firing him or reducing his wages– even if the DOL determines that he is not owed any wages. If the employer retaliates, the DOL will investigate that as a separate complaint. (In some situations, the DOL decides that a case involving only one employee is too small for them to investigate. In that case, they will refer your husband to an attorney specializing in employment law, who will take the case for him and sue the employer if necessary to collect.) HTH, and thanks for reading the blogs!~ Amelia

    Read more about this at: http://www.dol.gov/whd/regs/compliance/fairpay/fs17g_salary.htm
    http://www.dol.gov/whd/regs/compliance/fairpay/fs17a_overview.pdf

  25. Hi Karen! Yes, under the current unemployment regulations in most states, an employee can file an unemployment claim whenever they are out of work. In many cases, an exempt employee who is out of work for one week or more will qualify for unemployment benefits. HTH, and thanks for reading the blogs!~ Amelia

  26. Hi Steve! There is no law that requires an employer to count furlough as time worked toward overtime. Under the federal FLSA or Fair Labor Standards Act, hourly employees are entitled to overtime when they work more than 40 hours per week. That word “work” is important. It means that holiday pay, vacation pay, sick pay and other types of pay for non-worked hours do not count toward overtime.

    Of course, if an employer wanted to pay workers for extra overtime that they had not worked, it would be lawful to do so. But there is no law that the employer must do so. If that doesn’t answer your question, feel free to post more details. HTH, and thanks for reading the blogs!~ Amelia

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