THIS WEEK'S ISSUE
5/30/2009 7:00:00 AM
Company furloughs create a legal minefield
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BY MARJORIE SMITH
Staff Writer
Furloughs are a legal minefield, and a lot of companies can get caught in the line of fire without even knowing it.
According to Mike Staebell, assistant district director for the U.S. Department of Labor's Wage and Hour Division's Des Moines district office, in furlough situations, an employer cannot legally deduct pay from its exempt employees, unless the worker takes a full five-day furlough all at once. According to the Department of Labor, an exempt employee is generally a salaried worker who is exempt from minimum wage and overtime pay.
"It's simple when you think about it," said Elizabeth Overton, an attorney with Sullivan & Ward P.C., who recently has been blogging about federal furlough laws. "Exempt employees need to take (all furlough days) at once because if they don't, it is a detriment to the employer."
Under the Fair Labor Standards Act (FLSA), "an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked."
Simply stated, Staebell said, it would be illegal for an employer to make one-day deductions in pay for furloughs.
For example, an employer cannot legally implement unpaid Fridays for five weeks as a cost-savings measure. Additionally, an employer cannot mandate five furlough days and then allow its exempt employees to take those days at random.
Earlier this year, Iowa Health - Des Moines mandated 10 furlough days for its senior management, affecting around 200 employees, said Jennifer Perry, a company spokeswoman. She said the furloughed employees were given three options for taking their furloughs days, but none of the options allowed the employees to take the days at random.
Overton said that if an employer allows exempt employees to choose furlough days at will, it is in violation of federal law. As a result, exempt employees could lose their status and become nonexempt employees.
"We advise businesses that are doing furloughs to make sure their exempt employees don't lose their exempt status," she said. "If they are exempt (and they take single furlough days), they can lose their status, and then the employer would have to pay them as a nonexempt employee - and that's the problem."
Staebell said that if a worker loses his or her exempt status as a result of a poorly executed furlough, the employer would be required to classify the worker as a nonexempt employee. This would mean paying time and a half for any hours worked beyond 40 in a single week.
"We would deny those employees exempt status, claiming these people do not meet the requirement to be exempt, so the employer would have to back-pay that employee as nonexempt status for the past two years, which means overtime too," Staebell said.
In the long run, Staebell said, a step intended to cut costs could really do quite the opposite; many salaried, or exempt, employees work well over 40 hours a week.
"When it is part of a perceived plan to not pay one Friday for five months, then it is intentional and the employer would have to pay back pay," he said. "It could really add up. It's not worth taking that risk."
This risk could cost the company tens of thousands of dollars in back pay, and the total could keep climbing as the employee pool grows, Staebell said.
By having exempt employees take full furlough weeks, Staebell and Overton agreed, employers avoid the risk of audits and lawsuits and jeopardizing employees' exempt status.
"You just want to make sure you aren't opening yourself up to any liability," Overton said. "Employers need to try to make a good-faith effort to understand the rules because it always falls back on the employer to be informed, not the employee."
However, full-week furloughs aren't the only acceptable way to reduce payroll costs, Staebell said.
Another option that employers have - the only other legal option, Staebell said - is to reduce employee pay. He said it is legal for employers to reduce exempt employees' pay in an attempt to curb costs.
For instance, in March, Principal Financial Group Inc. announced its plans to reduce employee salaries from 2 percent to 10 percent depending on the worker's pay level.
If you or your company has a question regarding FLSA and furloughs, contact the Department of Labor's Wage and Hour Division's Des Moines district office at (515) 284-4625 or visit its Web site at www.wagehour.dol.gov.
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Posted: Wednesday, March 03, 2010
Article comment by:
Carrie
Im an employee of el paso county. Im a bit confused. The county implemented 4 furlough days for budget purposes. However, now they are adding 3 more days when the budget has been set. Is this possible?
Posted: Tuesday, September 08, 2009
Article comment by:
Juanita Randall
I am a NJ State worker. We are currently being asked to do five furlough days in 2009 and five in 2010. I no longer have overtime pay, but I have compensation days replace the overtime monies. I cannot afford consecutive days off so I have elected to take one day a month except in October, where I’ll take two days in that month. All of this to keep from having back to back monies taken out. Some how the electronic time count was late in being recorded by human resources and because of that snafu there will be back to back pays given to the state. Whose jobs are we saving? There are still many people being laid off. What State bills are we paying for? Are the higher paid salaries of the entertainment/sports industry contributing to this cause too?
Or is this one hell of a Ponzi scheme. We are now asked to dock/furlough our own pay electronically. If something else goes wrong there will be another delay further pushing back when a payment to the state will take place, until there will be multiple days taken out of one pay which I can not afford now as it is!!!
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