Exempt Employee Furlough and FairPay Regulations

In an effort to reduce costs, many employers are considering furloughs – unpaid leave – for exempt employees. However, furloughs can be a legal minefield, if not handled properly, according to the SHRM, the Society of Human Resource Management.

According to the U.S. Department of Labor regulations issued in 2007, an exempt salaried employee is entitled to his or her full salary in any week in which the employee does any work at all – regardless of the number of hours that the employee works.

Under the federal FairPay regulations , an exempt employee who works for 10 minutes during the week is entitled to the same salary as if he or she worked 100 hours during the week.

Also under the FairPay regulations, if an exempt employee is ready, willing and able to work on a particular day, but no work is available, the employer must pay the worker for that day. For example, if the business in Kentucky is closed by a massive power outage, exempt employees must still be paid for that day. Hourly or non-exempt salaried employees need not be paid, under the FLSA or Fair Labor Standards Act.

This means that an employer cannot furlough an exempt employee for one or two days. Even if there is no work, or the employer asks the employee to remain at home and take the time off, the employee must be paid his or her entire salary for any payroll week in which the employee performs any work at all.

However, there is a way for employers to save money by furloughing exempt employees – as long as the furlough is for the entire payroll week. As long as the furloughed employee does no work whatsoever during the payroll week – including working from home – the employee need not be paid that week.

The complexity of these regulations is illustrated by the fact that even experts do not always agree on the interpretation of the law. One source at SHRM, who asked to remain anonymous, suggested that furloughing the employee for an entire payroll week would not be legal, if the company was shuttered. But, if the company continues to operate as usual, the unpaid furlough would be legal.

Despite dissenting opinions, most experts agree that as long as the exempt employee does no work whatsoever during the payroll week, the employee need not be paid.