As employers prepare to return their employees to the workplace post COVID-19, many are faced with making difficult decisions regarding compensation due to the economic downturn. In some cases, employers may decide to temporarily reduce employees’ compensation until they return to pre-pandemic business operations. When adjusting employee compensation, employers must ensure compliance with several federal and state employment laws.
Pay Rate Notice Requirements
Many states, such as New York and the District of Columbia, require employers to provide written notice to employees of their regular rate of pay and overtime rate, if applicable, at time of hire and when the rate of pay changes. Employers should check with their state’s labor office to determine if such a requirement exists. Some jurisdictions like the District of Columbia, have a specific form available to employers (D.C.’s form can be found here) , while other states allow employers to create their own forms. This written notice must be provided prior to the effective date of the pay change, and employers may not reduce the rate of pay retroactively. Failure to provide the notice in states that require it, can result in stiff fines. In D.C., penalties include:
- A $500 fine for each violation of the notice requirement for new employees.
- Criminal penalties of $2,500 to $10,000 per affected employee for employers that willfully or negligently violate the Wage Payment Act and Living Wage Act, along with possible jail terms of 30 to 90 days.
Even if pay rate notices are not mandated in a particular state, it is considered a best practice to notify employees in writing of their pay rate upon hire in an offer letter and any time that rate changes. Employees returning to work from a furlough due to COVID-19 should know before their return if their compensation has been changed.
FLSA Considerations
For an employee to be considered exempt from overtime requirements under the FLSA, she must meet certain tests regarding her job duties and be paid on a salary basis at not less than $684 per week. If an exempt employee’s salary is reduced to less than $684 per week, she must be reclassified as a non-exempt employee no matter her job duties. If an exempt employee’s job duties have changed due to COVID-19, she may no longer be exempt under the relevant duties test. Remember that job titles do not determine an employee’s exemption status. The Department of Labor provides a detailed fact sheet to assist employers in making FLSA classifications.
Also keep in mind that the FLSA requires exempt employees have a fixed weekly payment so employers cannot frequently change their salary up and down. If it is necessary to reduce an exempt employee’s salary due to an economic downturn or other business reason, it should remain that way for an established period of time, like a quarter, before increasing it. Frequent fluctuations could be misconstrued as a wage rate by the Department of Labor. If an employer’s economic situation improves after an established period of time, and the employer wants to increase an exempt employee’s salary, the employer should be clear that the increase is due to an economic upturn and the new salary is expected to be in place for the long haul.
Call Smart HR For Your COVID-19 Concerns
Smart HR has been busy assisting its clients with a range of COVID-19 issues and concerns as business owners and HR staff prepare for a return to the office. It is likely any issues your company is facing have already been addressed among the Smart HR team of seasoned consultants and may be an easy fix. In more complicated scenarios, Smart HR has the resources necessary to provide you with a path forward towards a resolution. Call Smart HR today.
