DLSE Issues Opinion Letter Regarding Reductions in Salary


The Division of Labor Standards Enforcement (DLSE), the California agency which enforces state wage and hour laws, recently issued an Opinion Letter regarding reductions in salary for exempt employees. DLSE opined that an employer, which was experiencing ongoing financial difficulties after conducting layoffs and contemplated further layoffs, could temporarily reduce the work schedule of its exempt employees (from 5 to 4 work days or by 20%) with a proportionate decrease in salary without affecting their exempt status as long as all other applicable requirements (such as the monthly salary amount) are met. There, the employer intended to fully restore the workweek and salaries as soon as business conditions allowed.

An employer needs to be sure that employees are properly classified as exempt and non-exempt. Here, the exemptions described in Section 3 of applicable Wage Order 4-2001 relate to the executive, administrative, and professional exemptions. In addition to meeting one of these three exemptions, an exempt employee must meet the Salary Basis Test, earning a monthly salary of at least twice the state minimum wage for full-time employment (defined as 40 hours per week). Pursuant to federal regulations, an exempt employee must receive a predetermined amount of compensation each pay period (on a weekly or less frequent basis) which is not subject to reduction because of variations in the quality or quantity of work performed. Additionally, an exempt employee must receive the full salary for any week in which he/she performs any work without regard to the number of days or hours worked, but may not be paid for any workweek in which he/she performs no work.

Employers which are considering reductions in pay and similar cost-saving measures should be sure to comply with all applicable laws to prevent against potential claims.

What employers need to do:

  • Fully consider all cost-saving measures
  • Implement any changes pursuant to applicable law
  • Contact Vantaggio HR before implementing any scheduling changes for exempt employees

For additional information, please see the DLSE Opinion Letter at:
http://www.dir.ca.gov/dlse/opinions/2009-08-19.pdf.

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