Many businesses in Iowa and elsewhere continue to experience slack demand, lower revenue, and low to non-existent profits. Economic indicators in Iowa continue to sink. As a means of trimming payroll expenses while avoiding long term or permanent lay-offs of employees, many employers are looking to voluntary or even mandatory unpaid furloughs.
Employers should be cautious when implementing an employee furlough program, particularly when it involves furloughs of professional or administrative employees who are paid a set salary regardless of the number of hours worked. Such employees are considered "exempt" under the federal Fair Labor Standards Act (FLSA) because they are not entilted to overtime in the event they work more than forty hours per week. On the other hand, if such an employee works less than forty hours per week because of reductions in business, the employer’s right to pay the employee less than his or her regular salary is limited.
A recent opinion from the Department of Labor purports to clarify when an employer may deduct from an exempt employee’s salary because of time off work. Generally speaking, an employer that requires exempt employees to take mandatory furloughs cannot reduce the employee’s pay unless the furlough last at least one week. Exempt employees who are required to take furloughs of less than one week are still entitled to receive their full salary.
If the employee’s leave of less than one week is truly voluntary, his or her salary may be reduced by an amount proportionate to the time off work (i.e. if the employee takes one day off, the salary paid can be 4/5 of the regular salary). However, the employee must be off work a minimum of one full day. In other words, if the exempt employee works part of the day and is off the rest, the employer may not reduce the employee’s salary to account for the time off. It is also critical to note that the employee must be completely free of any obligation to work on the day off–even a requirement to check voice mail or e-mail may trigger the employer’s obligation to pay the full salary.
The Department of Labor has promulgated rules on this subject, but the rules are complex and sometimes difficult to understand. Employers are advised to seek counsel before making furlough decisions about exempt employees.