Furloughs, Hour Cuts, and Pay Cuts: Your Rights

Cutting employee hours is a common tactic when a business is struggling, but what legal rules apply?

In an effort to avoid or minimize layoffs, many employers have cut employee hours. Some have resorted to furloughs: requiring employees to take a day off every week, two weeks, or month, for example. And some employers have cut employee pay, either instead of or in addition to cuts in hours. Plenty of employees are willing to accept these measures as an alternative to losing their jobs -- or losing their coworkers to layoffs.

The legal rules that apply to these cost-cutting measures depend on your exemption status: that is, whether you are an hourly (nonexempt) employee who is legally entitled to be paid overtime if you work extra hours or a salaried (exempt) employee who is paid the same amount each week regardless of how many hours you work. (To learn more about these distinctions -- and figure out which category you fit into -- see Nolo's article Overtime Pay: Your Rights as an Employee.)

Nonexempt (Hourly) Employees

If you are a nonexempt employee, your employer is legally allowed to cut your hours or impose a furlough. However, your employer still must pay you for every hour you actually work. Many employees have found that, although their work hours have been cut, their work load has not -- and their employers expect them to pick up the slack. This is neither fair nor legal: If you are an hourly worker, then you are entitled to compensation for every hour worked, period. If you have to bring work home or put in hours on what's supposed to be your furlough day, you have a legal right to be paid for that time.

Some employees have suffered pay cuts, either instead of or in addition to a cut in hours. This is also legal, but only if your hourly pay after the pay cut is at least the minimum wage. (The federal minimum wage is currently $7.25 an hour; many states have higher minimums. You can find the current numbers for your state at our page, Wage and Hour Laws in Your State.)

Also, if your hours have not been cut and you are required to work any overtime, you are entitled to time and a half: 150% of your hourly pay rate (after the pay cut).

Exempt (Salaried) Employees

The rules for exempt employees are a bit different. Regular wage and hour laws don't apply to employees who fall under an exemption to the laws; the most common exemptions are for "white collar" workers: administrative, executive, and managerial employees. These employees are exempt from overtime only if they perform certain types of work (generally, work that requires an advanced degree, is managerial or supervisory in nature, or requires them to make relatively high-level business decisions), and they are paid on a salary basis.

It's the salary basis test that changes the rules for exempt employees. You are paid on a salary basis only if you make at least $455 a week and you receive the same salary each week, no matter how many hours you work. There are a handful of exceptions to this rule (for paid vacation or FMLA leave, for example) but, generally speaking, if your employer doesn't pay you your full salary for each week you work, that changes you into an hourly employee who is legally entitled to be paid overtime. This is a result most employers want to avoid. (For more on the salary basis test and its exceptions, see Nolo's article Legal Limits on Pay Docking and Unpaid Suspensions.)

If you are an exempt employee and only your hours are cut (in other words, you still receive the same salary each week), there's no legal problem. Of course, there's also no business reason for an employer to ask you to do less work for the same amount of money! Not surprisingly, this has not been a common strategy during the recent recession.

If, however, your pay is cut -- either on its own or in conjunction with an hours cut or furlough -- then your employer might be required to treat you like a nonexempt employee and pay you overtime for any extra hours you work. This might happen in one of two ways: First, you will no longer be exempt if your salary is cut to less than $455 per week. Second, you will no longer be exempt if your hours are reduced on a day-to-day or week-to-week basis, depending on the operating requirements of your employer. For example, if you work 30 hours one week, 45 the next, and 25 the following week, based solely on how much work is available to do, you will be treated as an hourly employee entitled to overtime.

However, the federal Department of Labor has said that employers may cut the pay of salaried exempt employees without losing the exemption if that cut is prospective and reflects the long term needs of the business. This means, for example, that an employer may cut your monthly salary from $1,000 to $900 per week, if that cut is intended to continue as long as necessary, in response to the economic downturn. But it may not cut your salary to $900 this week, $800 the next, and bump it back up to $1,000 the following week, based on its day-to-day levels of business. This type of strategy starts to look a lot like simply paying you for the hours you work rather than paying you a salary. And that's how you can be converted to a nonexempt employee, entitled to overtime when you work more than 40 hours per week (which, for many salaried employees, is fairly often).

For more information on your right to time off work, see Your Rights in the Workplace, by Barbara Repa (Nolo).

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