By: Dan Cohen – 11/20/15
With Thanksgiving just a week away, many of us have already begun our holiday preparations and planning. Most of us will spend next Thursday, and even Friday and Saturday eating, spending time with family, watching parades and the Lions and shopping. Most of us will not be worrying about whether docking pay of our salary exempt employees for the Thanksgiving Holiday will jeopardize their overtime exemption because they can no longer meet the salary basis test. However, this is something that should be taken seriously by employers because losing an overtime exemption can result in significant back wage claims. The Department of Labor, Wage and Hour Division provides a solution for dealing with short term closures like Thanksgiving. According to the Wage and Hour Division:
[s]ince employers are not required under the FLSA to provide any vacation time to employees, there is no prohibition on an employer giving vacation time and later requiring that such vacation time be taken on a specific day(s). Therefore, a private employer may direct exempt staff to take vacation or debit their leave bank account . . . , whether for a full or partial day’s absence, provided the employees receive in payment an amount equal to their guaranteed salary.
Wage and Hour Opinion Letter FLSA2005-41 (Oct. 24, 2005); see also 29 C.F.R. §§ 541.600, 541.602(a); 69 Fed. Reg. 22,122, 22,178 (Apr. 23, 2004) (“[E]mployers, without affecting their employees’ exempt status, may take deductions from accrued leave accounts.”).
The DOL’s opinion does not apply to shutdowns lasting a full workweek, like the December shutdown of the automotive plants, since exempt employees need not be paid for any workweek in which they perform no work. The opinion also does not apply to employees who have no vacation or paid time off available. Indeed, the DOL has emphasized that if an exempt employee has no vacation time remaining, or has a negative vacation leave balance, the employee still must receive the employee’s guaranteed salary during the temporary shutdown in order to avoid violating the salary basis requirement and jeopardizing the employee’s exempt status.
Employers are also cautioned that employees qualify for unemployment if they lose a full week of work due to a holiday shutdown. Moreover, if the shutdown results in the loss of a partial week, employees can claim unemployment for the time off unless they earn 1 ½ times the applicable benefit rate (which is 4.1% of the highest wage paid in a base period quarter up to a maximum of $362). Holiday and vacation pay is included as remuneration when calculating eligibility for unemployment, providing another reason why employers often designate the shutdown week as a mandatory vacation week.