The Coronavirus outbreak has led many businesses to make tough decisions around implementing cost-cutting measures to sustain their business. Many want to avoid a full blown reductions in force (RIF) to avoid losing valuable employees. There are a number of cost saving options to consider, some of which are designed to be temporary and reversible. We will get through this challenging time and need to be able to have the critical workforce ready when we start to recover.
The following is a simplified list for reducing pay for exempt employees:
Because employers are not required to pay exempt employees (salaried) for any week in which they did not perform work, employers may require exempt employees to take a full workweek off or longer. To distinguish from a position elimination or termination, this may be referred to as “furlough.” The U.S. Department of Labor (DOL) has noted that employees can also be required to use vacation pay during furloughs. The benefit of a furlough is that employees can stay on their employer’s benefits program.
Reduced Work Hours and Pay
Employers may reduce an exempt and non-exempt employee’s work assignments and compensation on a forward-looking basis. There is no solid rule for how long a reduced schedule can continue, but it must not be intermittent.
Across the Board Pay Reduction for Salaried Employees
Because the terms and conditions of employment are all “at will,” pay rates may be changed as needed for exempt employees, even though a workload and schedule can remain unchanged. With this method, employees who make more money take a larger percentage pay reduction to avoid impacting your lower pay employees more.
Unpaid Personal Days for Volunteers
Employers may reduce weekly pay if the exempt employee takes entire days off in a way that is completely voluntary. Salary deductions may be made when exempt employees voluntarily take time off for personal reasons, other than sickness or disability, for one or more full days. The employee’s decision to take VTO must be completely voluntary.
Docking PTO During Shortened Work Periods
Employers may reduce an exempt employee’s PTO hours if the employee works shortened days or weeks, provided they still receive the same full weekly salary. No true deduction from pay occurs here only a reduction in the exempt employee’s PTO bank.
Benefit and Bonus Reductions
If an employer offers a 401(k) match, they can typically suspend the company match. Any reduction in 401(k) match or bonus amounts should be performed only after careful review of applicable plans, employment agreements, company policies, and consulting our 401(k) broker.
Employers may offer consideration for employees to separate their employment altogether. There are many advantages to developing a voluntary separation program. Because the program is voluntary, this approach is unlikely to damage employee morale.