When businesses are struggling—whether because of the coronavirus (COVID-19) pandemic or more normal economic downturns—many employers try to avoid permanent layoffs by putting their employees on furlough. These furloughs may take the form of a reduction in employee hours or what is essentially a temporary layoff. Some other employers simply cut their employees' pay. 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 the nature of your employer's action (temporary layoff, reduction in hours, or pay cut) and on your employment status. Read on for details.
Often, a furlough is similar to a layoff. Although the employer plans to bring back its employees once conditions change (or at a certain time of year, in the case of seasonal work), the furloughed employees generally have the same rights as laid off workers, including the right to unemployment benefits. The rules for unemployment benefits normally depend on state law—except in rare situations when federal law applies (more on that below).
Although many employers maintain employee benefits like health insurance during this type of furlough—or as long as they can—they generally aren't obligated to do so (unless required under employment or union contracts).
When your employer cuts your hours and/or pay, the legal rules depend on whether you are:
(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.)
If you are a nonexempt employee, your employer is legally allowed to cut your hours. In this situation, you may be entitled to partial unemployment benefits. (Here again, the rules will depend on the state where you live.)
Even though a reduction in hours is legal, your employer still must pay you for every hour you actually work. As an hourly worker, you are entitled to compensation for every hour you work—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.
It's also legal for your employer to cut your pay, either instead of or in addition to a cut in hours, unless the pay cut means that your hourly pay is below the minimum wage. (The federal minimum wage is currently $7.25 an hour, but many states have higher minimums.) 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).
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 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 $684 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). Generally speaking, however, you become an hourly employee legally entitled to be paid overtime if your employer doesn't pay you your full salary for each week you work. This is a result most employers want to avoid. (Learn more on the salary basis test and its exceptions.)
There's no legal problem if you're 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!
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 $684 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).