Updated: Oct 8
One of the most common results of the economic downturn caused by Covid-19 is employers having to reduce the hours and/or pay of employees.
So while it's not a fun situation on any level, it's still important to follow proper procedure and maintain compliance to keep your business safe.
We'll cover the proper ways to reduce the hours or pay for both exempt and non-exempt employees.
As a reminder, a non-exempt employee is entitled to both minimum wage and overtime pay.
An exempt employee has several specific exceptions but in general an exempt employee is not entitled to BOTH minimum wage and overtime.
The FLSA (Fair Labor Standards Act) lists quite a few exceptions but the most common are executive, administrative and professional exemptions. Check out the FLSA for more details.
Reducing Time or Pay For Non-Exempt Employees
Non-exempt employees aren't guaranteed a certain number of hours – unless there's a contract in place for a certain number of hours. So you can reduce the number of hours a non-exempt employee can work.
It's generally not good practice to make changes mid-shift, but if you send a non-exempt employee home mid-shift, check for reporting time pay and make sure you pay for any work done at home, unless it's de minimus.
The non-exempt employee will still be able to apply for unemployment insurance.
If you've decided it makes more sense to reduce the hourly wage of a non-exempt employee that is also allowable.
Remember to stay above state, local or federal minimum wage requirements.
Also, be aware that overtime is still owed even though you reduced the wage.
Note*** Employees actually are not able to wave their right to minimum wage or overtime - even if they sign off on it – they can still sue you later so be careful.
Be sure to give notice before the change: i.e. hey next pay period pay will change.
Ensure the change isn't retroactive (don't do it in the middle of a pay period) instead make the change starting on a new pay period.
EXEMPT EMPLOYEES (SALARY)
It is allowable to reduce the salary of exempt employees.
Again, be sure to stay above federal or state minimum, which ever is higher.
The federal minimum is $684/wk. Some states are higher, so check your state laws to make sure you are compliant and make sure the change isn't retroactive.
If you have an exempt employee you want to reduce salary below the minimum, then you need to reclassify them as a non-exempt employee and pay them by the hour.
Don't do this on a short term basis (looks like you're trying to beat the law) so make sure the change is for at least 1 month.
With the change to a non-exempt employee you will have to pay them overtime and comply with breaks as required by state law.
Finally, if you decide to make pay-cuts or changes and they don't affect all employees equally across the board, make sure you document your business reasons for why you are taking those actions.
You want to be sure you are being fair and not getting into a discriminatory situation.
In sum, while it's no fun to reduce hours or make pay-cuts, if it's something you have to do to keep the doors open just make sure you are doing it correctly.
It would be a travesty if your attempt to save your business by reducing hours or pay ends up closing your business because of a lawsuit or fine.
So keep working hard out there, but make sure you work smart as well.