The Intersection of Furloughs and Wage Laws

The Intersection of Furloughs and Wage Laws

Both private and public employers have been experimenting with cutting back employees’ hours instead of choosing some for layoff.  The benefits of this strategy include sparing some of the employees from the devastation of a full layoff, improving morale, and saving on the severance or unemployment benefits costs of laying off employees.  For employers expecting to bounce back as the recession eases, keeping the employees also will make it easier to spring back into action.  Employees are not likely to enjoy the cut in pay, but some may make good use of the extra time.

This practice works most smoothly for hourly employees, who must be paid for all hours worked, at least minimum wage, plus overtime pay.  If an employee who used to work five full days per week is reduced to four, the employer must pay him for the four days.  This strategy can backfire if the furlough is in name only.  If employees actually are working on the days when they are supposed to be off, then the employer is in danger of violating the Fair Labor Standards Act and Maryland’s Wage Payment and Collection Act.  Actual work includes checking email and voicemail messages, responding to customers or coworkers, and waiting on call in some instances, depending on the amount of freedom the employee has while waiting to be called into action.  If the employee often works from home or from the other end of a telephone or blackberry, the employer needs to be vigilant to be sure that the employee is not responding as usual on a furlough day.

Exempt employees pose a more difficult problem.  An employee exempt from overtime compensation requirements must meet responsibility requirements, as well as the salary test, in which the employee must earn $455 or more per week.  If the employee does any work during a week, the entire week’s salary must be paid.  An exception is made if there is a sick or personal leave policy; in that case full (not partial) days of sick or personal time, or days on which the employee does not work because of disability, may be deducted from pay, with personal/sick leave to fill in the gaps if it is available.  The employee’s leave balance can also be used to supplement the employer’s “sick” time, days in which there is not enough work.

In other cases there is not enough sick or other leave time to pay for furlough days, or the employer simply cannot afford to keep so many exempt employees on full-time status.  Then to furlough an exempt employee in the private sector, the employer has to cut the employee’s pay.  In Maryland, employees are entitled to two week’s notice of a salary reduction.  And the new pay may not be less than $455 per week.  An employer risks losing the exemption when it violates the rules about deductions from pay.

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