As states lift stay-at-home orders and businesses prepare to reopen their doors to employees, employers face a minefield of issues on the employment law front. One major area is wage and hour law, as many employers had to quickly implement layoffs, furloughs and wage cuts in the wake of the pandemic. As employers bring back employees and adjust wages, the following questions are likely to arise:
1. What should employers consider when reducing or reinstating wages?
There is a myriad of reasons why employers might adjust wages right now. Some may need to further reduce costs while others may want to bring back as many employees as possible, even if at a lower pay rate. This may be especially true for businesses taking advantage of a Payroll Protection Program loan and trying to make the most of the proceeds by paying as many employees as possible.
As a general rule, employers are free to change an at-will employee’s wages so long as the wages are not reduced below the federal minimum wage under the Fair Labor Standards Act (FLSA) and the change is on a go-forward basis — employers cannot reduce an employee’s wages for work already performed. However, many states have further restrictions, such as advanced notice and a higher minimum wage below which the wage rate cannot be reduced. Employers should review state and local law to ensure they are compliant when making these changes.
There are additional implications for exempt employees, or those not subject to the overtime requirements of the FLSA. Exempt employees must meet the salary basis requirement of the FLSA, which is not less than $684 per week (annualizing to $35,568) in 2020. If an employer reduces an exempt employee’s salary below this rate, the employee will lose exempt status and be subject to the FLSA’s overtime requirement for all hours worked beyond 40 hours in a workweek. For those employees usually working more than 40 hours, such a reduction effectively could increase an employer’s overhead instead of lowering it.
Additionally, changing an employee from exempt to non-exempt for short periods or repeatedly can undermine the exempt status of the position in other workweeks, opening up the employer to misclassification vulnerability. To prevent red flags in the eyes of the U.S. Department of Labor, employers should not change from exempt to non-exempt and back more than once.
2. Can an employer change or eliminate PTO policies?
Many employers are considering modifications to their paid time off (PTO) or vacation policies, either because they anticipate employees taking a significant amount of time off before the end of the year or having a significant number of hours to rollover into the next year because the employee was unable to take any time off during the chaos of the pandemic. The FLSA does not generally regulate paid time off; however, many states have restrictions. For example, some states prohibit “use it or lose it” or forfeiture upon termination provisions in paid leave policies. Other states merely require the employer to follow the terms in the policy, but that still means care must be taken when making changes.
Lawful implementation of changes can include providing sufficient notice to allow employees to use up accrued PTO before the change takes effect, paying out accrued vacation and starting over with a new policy, or eliminating accrual on a go-forward basis for a period of time. Which option is best for a business will depend on state law and the employer’s current policy.
3. Is COVID-19 temperature-taking compensable time?
Now that the U.S. Equal Employment Opportunity Commission has made clear employers can take employee temperatures without violating disability laws, the question left for many employers is whether the time spent taking temperatures is compensable. While there is no court decision exactly on that point (yet), a 2014 U.S. Supreme Court case, Integrity Staffing Solutions v. Busk, held that post-shift security checks for warehouse workers were not “principle activities” and, thus, not compensable under the FLSA. Some employers may take the position that temperature screenings similarly are not compensable, but others will include the time as hours worked to minimize the risk of a challenge or to ensure state law compliance.
The Supreme Court has also said that time spent waiting to perform a principal activity is not compensable under the FLSA. This suggests that the time employees spend waiting in line to have their temperatures checked may be excluded from hours worked.
On the whole though, otherwise non-compensable activities can become hours worked depending on when they take place. Thus, a review of the principles is only the starting point to an employer’s analysis. A thoughtful plan (such as staggering arrivals and ensuring that no compensable activities have occurred already) to minimize the risks, when possible, is key.