SPB Exempt Employees Unpaid

A few weeks ago, an unusual question crossed my desk: if a company wanted to close the office the day before an upcoming holiday and give employees an unpaid day off, how would this affect “exempt” employees?

The next thing you know, there’s a big discussion over just what an “exempt” employee is and how that status is defined. We thought we would take a few minutes and talk about definitions before answering the original question.

Defining Exempt

The US Department of Labor defines an exempt employee as one who is to whom the regulations laid down by the Fair Labor Standards Act do not apply. In case you were wondering (I was), the FLSA originally went into effect on June 25, 1938…so there is a track record of 85 years of labor law to think of here.

The bottom line exemption here is that these employees are not required to be paid overtime…because they are paid a fixed, unchanging salary regardless of the number of hours they work in a work week. By contrast, non-exempt (hourly) employees are entitled to receive overtime pay at the rate of one and a half times the regular hour rate for any hours above 40 in a work week. And you don’t want to violate that rule…see our previous blog if you have questions.

Specific Requirements

Before you go thinking you’ll just classify all your employees as “exempt” and not ever have to worry about paying overtime again, there are some criteria that must be met in order for an employee to get such a classification.

The first rule is pretty easy to assess: employees must be paid at least $35,568 per year ($684 per week) to be considered exempt.

The second rule is the “salary basis.” Basically, if the employee has a “guaranteed minimum” amount of pay they will receive for any work week in which they perform “any work.” This definition can get somewhat complex because the guaranteed amount doesn’t mean the amount never changes and it also may be affected by absences.

Finally, the employee’s duties determine whether or not they can be defined as exempt. An “executive job” will be exempt if the employee regularly supervises two or more other employees, is primarily in a management role, and has some input into the job status of other employees. “Professional duties” means “work which is predominantly intellectual, requires specialized education, and involves the exercise of discretion and judgment. Professionally exempt workers must have education beyond high school, and usually beyond college, in fields that are distinguished … the mechanical arts or skilled trades.” Finally, “administrative job duties” includes office or nonmanual labor directly related to management or general business operations, and they involve the “exercise of independent judgment and discretion about matters of significance.”

If you want to get deep into the weeds on the subject, all the definitions are expanded upon thoroughly here.

To Answer Your Question

The short answer is “No.” If an exempt employee is otherwise required to work during that week that the holiday occurs, you cannot make them take an unpaid day off. This is because exempt employees are guaranteed a minimum amount for any work week they do work, no matter how many hours they work.

You can, however, require exempt employees to use accrued vacation or paid time off (PTO) to cover the closure. If they do not have any accrued vacation or PTO, they still have to be paid the minimum amount they normally do. It would be good to point out, too, that making exempt employees take PTO time to cover this type of closure should be explained in your employee handbook. That way everyone knows what is expected up front and you can minimize surprise and resentment.

And Furthermore

There are other circumstances under which you can require exempt employees to take unpaid days off, as long as you are in compliance with labor laws and regulations…and you maintain the employee’s exempt status.

If your organization is in a temporary slowdown and lacks work, you can require exempt employees to take unpaid time off, as long as it is applied consistently and does not change their exempt status. This also applies if the “temporary slowdown” becomes a longer, but still specified time, generally referred to as a “furlough” or “temporary layoff.” The understanding is that the employee will return once the situation improves.

If your company has need of a shutdown for a prolonged period, exempt employees do not need to be paid during that time. This would apply if your company regularly takes a long holiday, such as shutting down on December 15 and returning on January 2, or if your workplace has planned maintenance periods during which regular employees cannot perform their job duties.

Exempt employees can end up exhausting their PTO, whether it be vacation or sick days. If they need additional time off for personal or medical reasons, you can require them to take it as unpaid. This also applies if they are requesting to take unpaid time off voluntarily for personal reasons.While the answer to the original question is fairly simple, the rules surrounding the exempt employee designation are not always so easy. If you have exempt employees, we encourage you to familiarize yourself with the regulations and stay on the right side of them. And Southern Payroll & Bookkeeping can help. If you’d like to talk about how, give us a call at 423-207-2497 today.