In three new opinion letters, FLSA2009-2, FLSA 2009-14 and FLSA 2009-18, the DOL answers questions about the potential effect of temporary plant shut downs and reduced workweeks on the exempt status of executive, administrative and professional employees under section 13(a)(1) of the Fair Labor Standard Act (FLSA). All three letters address application of the salaried basis test set forth in 29 CFR § 541.602(a).

FLSA2009-2 affirms that an employer may require exempt employees to use accrued vacation time during a plant shutdown of less than a workweek without destroying exempt status. The FLSA does not require employers to provide paid vacation time. If employers choose to do so, they are free to require employees to use the time for any absence— including a plant shutdown of any duration—without harming exempt status. Aside from a few exceptional situations not relevant to this letter, in order to be paid on a “salaried basis” and maintain an exemption, the employee must “receive a payment in an amount equal to [his] guaranteed salary” for any workweek during which he performs any work. It does not matter if the amount is part regular salary and part vacation pay.

FLSA2009-14 addresses deductions during voluntary and mandatory reduced workweeks and complete weeks off. First, it examines whether an employer risks destroying exempt status by seeking volunteers to take partial weeks off and allowing the volunteers to choose to take a salary deduction or to be paid with accrued vacation or personal time. If an employee chooses to use accrued time and receives the equivalent of his regular salary, then all is well. The problem arises if the employee chooses salary deduction. The DOL acknowledges that 29 CFR § 541.602(b)(1) allows deductions from an exempt employee’s pay if the employee is voluntarily absent for one or more full days for personal reasons. However, it then states, “the employee’s decision to take [voluntary time off] . . . must be completely voluntary and not ‘occasioned by the employer or by the operating requirements of the business.’” (emphasis added). The underlined text suggests an employer who relies on “volunteers” to work reduced workweeks and allows the volunteers to choose salary deduction does so at its peril. Should the employee decide after the fact that he was coerced into taking the reduced weeks, the employer will bear the very difficult burden of proving the “voluntary” nature of the decisions. This may not be a risk worth taking.

The letter next determines that an employer risks destroying exempt status by mandating partial weeks off and allowing employees to choose whether to take a salary deduction or use accrued vacation or personal time to be paid. If an employee uses the accrued time and receives the equivalent of full salary, there should be no problem. If, however, a salary deduction occurs, then exempt status will be destroyed. Under 29 CFR § 541.602(a), “[a]n employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business.” The DOL advises that “salary deductions due to a mandatory reduction of hours worked for short-term business needs” are exactly the sort of activities encompassed in the phrase “by the operating requirements of the business.” Any deduction in this situation – even one an employee chooses – destroys the exemption.

Third, FLSA2009-14 addresses whether an employer places exempt status at risk by mandating, or seeking volunteers to take, an entire week off. The letter quotes 29 CFR § 541.602 (a): “Exempt employees need not be paid for any week in which they perform no work.” So an employer does not harm exempt status by not paying exempt employees’ salaries for any week in which the employees do no work – regardless of whether employees volunteer to take the week off or the employer mandates the week off.

FLSA2009-18 combines issues addressed in the first two letters with slightly different twists. The letter first determines that an employer does not jeopardize employees’ exempt status by requiring use of PTO in periods where workload mandates reduced hours on certain work days. Consistent with Letter 2009-2, the DOL takes the position that requiring employees to use PTO for time off due to reduced workload is acceptable – even for mandated absences of less than a day – so long as employees receive an amount equal to their guaranteed salaries for any week in which they perform work.

Finally, FLSA2009-18 indicates that an employer will destroy exempt status if it occasionally reduces exempt employees’ working hours in times of low business volume and makes corresponding salary deductions. The letter contrasts two situations. In the first, an employer decides to run a plant only four days a week instead of five, makes a long-term scheduling change for all employees from 40- hour weeks to 32-hour weeks, and reduces salaries by a fifth. In the second, an employer makes short term reductions in scheduled hours depending on the day-to-day needs of the business. According to the DOL, the first situation does not circumvent the salary basis requirement. Employees are still receiving a fixed salary for each week in which they perform work. In contrast, the second situation – like the deductions for mandatory partial weeks off addressed in FLSA 2009-14 – circumvents the salary basis requirement and destroys the exemption because “deductions from salary due to day-to-day or week-to-week determinations of the operating requirements of the business are precisely the circumstances the salary basis test is intended to preclude.”

These letters should raise employers’ comfort levels when requiring employees to use accrued paid leave time during business downturns. However, the letters leave little doubt that while hour reductions based on day-to-day or week-to-week operating needs of a business are acceptable, any resulting deductions from exempt employees’ salaries will quickly destroy the employees’ exempt status. These letters also only interpret federal wage and hour law as it applies to these situations. Employers should take care to ensure compliance with individual state wage and hour laws, some of which differ from the federal law, as well.

This blog entry was written by Jane Ann Himsel.