Exempt Employees Salary Reduction Regulations

One of the hottest HR topics right now is salary reductions for exempt employees. Many employers are faced with a choice of laying off employees, or using other tactics to reduce payroll.

 

When employers reduce exempt employees’ salaries, they must take certain precautions to avoid breaking the law.

 

One option to reduce payroll is to reduce hours for hourly employees. By having every hourly employee work 36 hours per week rather than 40 hours per week, an employer can reduce his or her payroll expenses by 10%. (In many cases, however, the cost of benefits remains constant.)

 

However, that solution won’t work for salaried exempt employees. Under the federal Fair Labor Standards Act Fair Labor Standards Act, or FLSA, employers must pay an exempt employee his or her full weekly wage, regardless of how many or how few hours the employee works per week. If the exempt employee works 60 hours per week, he or she is not entitled to overtime. However, if the exempt employee works 20 or 30 hours per week, he or she must still be paid the full weekly salary.

 

This raises a question for employers. Is there any legal way to reduce an exempt employee’s salary?  The answer is “yes.” Under certain circumstances, an exempt employee’s salary can be reduced, according to the U.S. Department of Labor.

 

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 business is slow, this can change the exempt status of everyone in that job. For this reason, the employer should always present the salary reduction to employees as permanent. There should be no promise or suggestion that the salary reduction is only temporary. The salary reduction needs to remain in effect for a minimum of 3 months.

 

Applying the salary reduction to only one or a few exempt employees can also change their exempt status. Ideally, the company would reduce salaries for exempt employees by the same percentage, across the board. If that is not possible, everyone with the same job should have a similar salary reduction.

 

Reducing hours for exempt employees when salary is reduced is a grey area. The safest course of action is for the employer not to reduce the number of hours when salary is reduced.  In some cases, the courts have ruled that when both salaries and hours are reduced, it changes the employees’ exempt status. In the worst possible scenario, employers have been required to pay the workers overtime for the past 3 years.

 

However, according to the SHRM, or Society for Human Resource Management, in some cases the courts have found that when a reduction in salary and hours for an entire class of exempt employees is part of a change in business tactics, the employees retain their exempt status.  

 

Some states including California have different exempt employee laws.

 

 

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313 Thoughts on “Exempt Employees Salary Reduction Regulations”

wayne ahrens

March 26, 2015 at 10:10 am

i was an employee of over 8 years in mn at a house building construction job then the company fired me one day and gave me no good reason for termination except that I had a blatened disrespect for authority and I had never been written up or warned about anything since I started working. And now they want to rehire me back at my old position which was utility so I had to do anything that needed to be done but now they want to pay me $14/hr when I was making $17/hr like the other 8 guys in the utility position. My question is if it’s legal to fire me and hire me back in the same class for $3/hr less ? If not what actions can I take so I don’t lose my unemployment wages if I turn them down. Cause that would terminate my unemployment wages.

Brandy

March 26, 2015 at 11:56 am

I am salary and work 50 hours a week and before taxes my check is 1000 biweekly. Can i claim exempt on my w-4?

nkosinathi mbedu

March 28, 2015 at 1:32 pm

My salary was reduced but my working hrs were increased,the reason was bcos I asked for a transfer from JHB to DBN,is this fair?

Jennie Pena

March 29, 2015 at 11:13 pm

my employer want s to give her friend a job and demote mine to give her friend her job ? is this legal and can they reduce my hourly rate with no cause

March 31, 2015 at 8:24 am

I am a salaried en and my last check was for vacation days and personal days that are generally paid at your daily wage mine should have been 164 a day but I was only paid at 123 a day. This was my last check but it doesn’t seem right. Can they legally change my rate to one lower than what I was originally hired at?

April 2, 2015 at 12:47 am

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April 2, 2015 at 2:37 pm

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b. miller

April 8, 2015 at 1:22 pm

i work approx. 20 hrs per week doing tele-marketing. My hourly salary has been 10.00 dollars per hour for the last 4 years. if i get leads that sell the product, i received a extra money for it. Sometimes i get 5-8 leads per wk. if 2 sell, i would received a bonus for them. I still rec. my 10.00 dollars an hour regardless. My boss now wants to cut my hourly pay to nine dollars on the weeks that i do not make at least 3 leads. if i make no leads he wants to pay me 8 dollars per hr. My question is this … is this legal?????

Carla Ledford

April 9, 2015 at 1:49 pm

Hi I was requiring about my job. I started off making 9.25 base pay, but the jobs I do are payed 14.00. But then they hired me as a contract worker and my base pay went to 11.00 but before I’ve been there two 1/2 Yrs. And I was making 10.25 before I started the. Contract work. That was my raise from 9.25-10.25. Then we get a letter stating that the 14 .00 drop pay is going to drop to 12.00 so then 30 is still consider full time but they drop my pay back down to 9.50 and they said that was with my raise. Is that legal.

Lala

April 11, 2015 at 2:52 pm

My husbands work took away his salary pay and gave him hourly wages the problems is he works 14 days on and 7 days off his hourly pay isba slap in the face can they do this

Abdulbast

April 16, 2015 at 1:18 am

Hi to all user of this blog m so amazing to see your comment on different issues as well as many compliance related with day to day activities,

Ana

April 22, 2015 at 4:59 am

My company is under financial stress. A lot of employees have been laid off .
In less than two years my salary has been cut four times, first time $15K, 2nd time , third time $30 and yesterday another $ $50K; my responsabities had been encreased My time is the same working over 50 hours A week, I’m an excerpt employee Holding a title of CFO. When the HR director resigned a year ago her duties were given to me, her salary was 116K yearly, the company saved that saraly and I accepted her responsibilities , I have been working for the
Company for 25 years.
Other except employees have not been reduced their salaries, reduction of salaties have been do by random, yesterday I asked my the owner of the Co my boss why and he did not give me a valid answer.Although
Is under the law my

Ana

April 22, 2015 at 5:03 am

My company is under financial stress. A lot of employees have been laid off .
In less than two years my salary has been cut four times, first time $15K, 2nd time , third time $30 and yesterday another $ $50K; my responsabities had been encreased My time is the same working over 50 hours A week, I’m an excerpt employee Holding a title of CFO. When the HR director resigned a year ago her duties were given to me, her salary was 116K yearly, the company saved that saraly and I accepted her responsibilities , I have been working for the
Company for 25 years.
Other except employees have not been reduced their salaries, reduction of salaties have been done by random, yesterday I asked the owner of the Co my boss why and he did not give me a valid answer.Although.
Thank you your your comments , do I have a labor case? Should I seek legal advise?

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