During any time of the year, weather or other factors might prompt an organization to close for some period of time, during which the employer might instruct employees not to work at all or to work remotely.
The rules around private sector employers paying employees during a work closure depend on whether the employee is nonexempt (paid by the hour or salaried) and entitled to overtime or exempt and not eligible for overtime.
Classifying your employees correctly is a challenge, and many employers are not in legal compliance. Here, we address only employees who are properly classified as exempt from overtime, and employer obligations to pay exempt employees when they are instructed not to work due to an office closure or other factors, but they are available and ready to work.
The Fair Labor Standards Act dictates how an exempt employee must be compensated to qualify as exempt from overtime. Otherwise, the employee becomes a nonexempt employee and is entitled to all the rights and benefits, including overtime, that come from that classification.
When an office is closed and the exempt employee is instructed to not come to work or to not work at all, reducing pay from exempt employees has substantial risk for employers.
Most exempt employees fall under the white-collar exemptions, which require that the employees be compensated on a “salary basis.” This means that the employees make a predetermined salary of at least $684 per week and the salary is not reduced regardless of the quality or quantity of the work.
“An employer must pay an exempt employee the full predetermined salary amount ‘free and clear’ for any week in which the employee performs any work without regard to the number of days or hours worked,” according to the U.S. Department of Labor.
The department adds, “As a general rule, if the exempt employee performs any work during the workweek, he or she must be paid the full salary amount. An employer may not make deductions from an exempt employee’s pay for absences caused by the employer or by the operating requirements of the business. If the exempt employee is ready, willing and able to work, an employer cannot make deductions from the exempt employee’s pay when no work is available.”
The Labor Department’s Fact Sheet #17G explains that deductions from pay for an exempt employee are permissible:
for absences from work for one or more full days for personal reasons other than sickness or disability;
for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
to offset amounts employees receive as jury or witness fees, or for military pay;
for penalties imposed in good faith for infractions of safety rules of major significance; or
for unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions.
“Also, an employer is not required to pay the full salary in the initial or terminal week of employment, or for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act,” the Fact Sheet says.
The company is also not required to pay an exempt employee who does not work any part of a week.
The employer can change an exempt employee’s salary prospectively, but it cannot be occasioned due to a temporary change in circumstances. The change must be “bona fide,” not used as a device to evade the salary basis requirements, and must “reflect the long-term business needs, rather than a short-term, day-to-day or week-to-week deduction from the fixed salary,” the Labor Department’s Fact Sheet #70 says.
Thus, if an employer chooses to furlough employees on Fridays, the employer cannot suddenly start docking an exempt employee one-fifth of the employee’s salary. This would violate the salary-basis test.
Note that physicians, lawyers, outside salespeople, or teachers in bona fide educational institutions are not subject to any salary requirements. As a result, deductions from the salary or pay of such employees will not result in loss of the exemption.
The Department of Labor explains, “Isolated or inadvertent improper deductions will not result in loss of the exemption if the employer reimburses the employee for the improper deductions.”
“As a plaintiff’s attorney, the FLSA is one of my very favorite laws for two reasons. First, you can get your attorneys’ fees. Second, it is so easy for employers to get wrong,” says Broderick Dunn, a partner at Cook Craig & Francuzenko.
He adds: “If an exempt employee performs any work at all during a day or a week, an employer may not deduct from that person’s salary. This comes into play more and more with the rise in remote work schedules.”