Furloughs are a hot topic in today’s economy. I previously reported on the potential usefulness of furloughs, as well as the risk that reducing an employee’s salary as part of a furlough program could run afoul of the "salary basis" test and jeopardize the employee’s exempt status.
Recognizing the need for legal guidance on this issue, the U.S. Department of Labor’s Wage and Hour Division recently issued a user-friendly "Frequently Asked Questions" fact sheet on furloughs. (Special thanks to my EBG colleague Elissa Silverman for bringing this to my attention.)
I don’t see any major surprises here. Nevertheless, employers considering the use of a furlough program would be wise to consult this fact sheet first.
On the issue of the salary basis test, FAQ # 7 confirms the basic rules that I discussed in March of this year:
7. Can an employer make prospective reduction in pay for a salaried exempt employee due to the economic downturn?
An employer is not prohibited from prospectively reducing the predetermined salary amount to be paid regularly to a Part 541 exempt employee during a business or economic slowdown, provided the change is bona fide and not used as a device to evade the salary basis requirements. Such a predetermined regular salary reduction, not related to the quantity or quality of work performed, will not result in loss of the exemption, as long as the employee still receives on a salary basis at least $455 per week. On the other hand, deductions from predetermined pay occasioned by day-to-day or week-to-week determinations of the operating requirements of the business constitute impermissible deductions from the predetermined salary and would result in loss of the exemption. The difference is that the first instance involves a prospective reduction in the predetermined pay to reflect the long term business needs, rather than a short-term, day-to-day or week-to-week deduction from the fixed salary for absences from scheduled work occasioned by the employer or its business operations.