Wage and Hour Considerations When Developing Modified Work Arrangements in Light of COVID-…

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Oct 5, 2020
This article is part of a series called COVID-19 Coverage.

Whether it is to provide an accommodation to a work schedule request, reduce costs in light of the economic impact of COVID-19, or enhance safety and health measures in the workplace, employers are reassessing work schedules and compensation arrangements as a result of COVID-19.

Some employers are shifting work hours, others are reducing hours and/or compensation, while still others are reclassifying salaried exempt employees to hourly non-exempt employees in light of schedule changes or salary reductions.

But before making such changes, employers should review federal, state, and local wage and hour laws to ensure they remain in compliance while implementing such changes. 

Considerations Under the Fair Labor Standards Act (FLSA)

Employers that are restructuring their employees’ work schedules, compensation, and responsibilities should keep in mind that such changes may have implications under the FLSA that rarely come up in everyday circumstances. Employers should carefully consider the following issues prior to making such changes to avoid any pitfalls under the FLSA. 

When modifying schedules, companies should keep in mind that exempt employees must generally be paid their full weekly amount if they perform any work during the week, with limited exceptions. Thus, it will become critical for employers considering staggering work schedules, for example by having exempt employees work one week and not the next, to make sure that those exempt workers who are not supposed to be working during the week are not performing any work and that any work-related contact with them during the week off is de minimus, ot too trivial or minor to merit consideration. 

Any changes to compensation must be prospective and employers must ensure that a salary reduction does not bring the employee’s annual salary below the salary basis threshold under the FLSA (currently $35,568 annually or $684 per week, or a higher amount under applicable state laws as discussed below).

Employers that are planning to reduce the amount of time an exempt employee is required to work in conjunction with a reduced salary should consider reducing the person’s schedule based on whole days (e.g., going from five days a week to four) rather than hours to avoid giving the impression that the individual’s salary only covers a specific number of hours of work each week, rather than payment for performing all the duties required of the job.

Additionally, reductions in an exempt employee’s prospective salary must be based on a bona fide business need, such as a change necessitated by COVID-19, and cannot be used to evade the salary basis requirements. Thus, such changes should not be sporadic, since reducing an employee’s workweek and salary for a few weeks, then returning to the previous workweek and salary, and then reducing the workweek and salary again, could lead to the employee’s exemption status to transition from exempt to non-exempt.

Further, changes to a worker’s job responsibilities can result in an employee’s exemption status changing from exempt to nonexempt if the employee’s job no longer involves exempt activities or the supervision of others. Thus, employers should analyze, for example, whether an employee still has an exempt primary duty and whether supervisors still oversee two or more full-time-equivalent direct reports.

For non-exempt employees, companies are generally permitted to reduce work hours based on a requested accommodation or business needs. Employers may also reduce an individual’s pay provided the employee continues to be paid at least minimum wage. Such changes should only be done prospectively and employees should be given as much notice as possible.

Further, schedules that are being adjusted due to the economic impact of COVID-19 could lead to employers being liable for “on-call” time, where an employee is required to be available to begin work upon notice from the employer, and “waiting time,” where the employee is waiting to begin work. Whether such time is “hours worked” under the FLSA and must subsequently be paid depends on the circumstances and largely focuses on the restrictions placed on workers who are on-call or waiting to begin work. 

The Wage and Hour Division of the U.S. Department of Labor (DOL) recently released several questions and answers concerning COVID-19 and the FLSA (FAQs) that highlight some of these issues and others. While nothing in the FAQs represents a change in the law, employers should review the FAQs for further guidance. 

Considerations Under State and Local Wage and Hour Laws

In addition to those considerations raised above, employers also need to consider state specific wage and hour issues.

For exempt employees, several states have higher salary-basis thresholds than the applicable federal threshold. Thus, for changes to an exempt employee’s pay, employers should confirm that any salary reductions do not bring the salary below the applicable state and federal threshold. For non-exempt employees, the hourly rate cannot fall below the applicable state and/or local minimum wage.

Many states require notice of an employee’s pay rate and the basis of pay in writing. Some states also require specific advance notice of pay reductions. Employers should confirm the notice requirements where they operate to ensure that they provide proper notice. Even where notice is not mandated, employers should be sure to inform employees in advance of all pay and hour reductions in writing. Notice should also be provided whenever an employee is being reclassified from exempt to non-exempt. 

Changes to work schedules can result in needing to provide additional compensation in certain circumstances and industries under state and local predictive scheduling laws. Employers should determine whether any such predictive scheduling laws are applicable prior to changing work schedules. Certain states may also have requirements for “call-in” time, where an employee is required to report to work and is then sent home.

Many states have laws governing meal and rest breaks that become difficult to comply with when schedules are modified as an accommodation or when shifts and/or meal and rest breaks are staggered as part of social distancing measures. Employers that are implementing such changes should make sure they have clear policies in place, provide training on what the requirements are for both employees and managers, and ensure that proper timekeeping procedures are being followed.

Additional Considerations for Employees Who Are Telecommuting

As employers continue to accommodate those who need to remain outside of the physical workplace, or delay returning to the office for all employees, they will face additional challenges presented by telecommuting. Even without a formal request for a modified work schedule, many employees are working modified schedules from home either as a result of a request for a modified schedule or because the norms around work hours have shifted in light of COVID-19. Employers should be wary of off-the-clock work and take measures to ensure non-exempt employees are being compensated for all time worked.

Employers can take steps such as adopting a robust time-worked policy, training non-exempt employees and managers on the policy to increase awareness and understanding of the policy, training managers not to reach out to non-exempt employees during non-working hours, and reviewing their timekeeping systems to confirm that it is easy to capture time worked off the clock. 

Monitoring meal and rest breaks can also be difficult for employees who are telecommuting. As mentioned above, developing proper policies and training can help the employer satisfy both its legal obligations and business needs.

Finally, employers should review with counsel any potential liability for expenses related to telecommuting such as internet and phone service charges, computer and telephone equipment, and other potential expenses related to working from home. Under the FLSA, employees cannot be forced to incur business expenses that lower their pay rate below minimum wage. Additionally, certain states require reimbursement of necessary business expenses. 

In connection with the rise of telecommuting, the DOL recently released Field Assistance Bulletin No. 2020-5 (Bulletin), which provides guidance to employers regarding their “obligation to exercise reasonable diligence in tracking teleworking employees’ hours of work.” The bulletin reiterates that “[a]n employer is required to pay its employees for all hours worked, including work not requested but suffered or permitted, including work performed at home.” This includes time that the employer knows about or has reason to believe is being performed, even if the employer did not request that the employee perform such work. 

Employers may have actual or constructive knowledge of unscheduled hours worked and courts typically analyze “whether the employer should have acquired knowledge of such hours worked through reasonable diligence.” The Bulletin reminds employers that a rule prohibiting employees from performing unauthorized work is insufficient to establish “reasonable diligence.” The standard for employers to follow is based on what reasonably should have been known, not what could have been known. The DOL advises that employers can satisfy their obligation by establishing reasonable procedures for reporting all hours worked, including any unscheduled or unauthorized time. 

If an employee fails to use the employer’s reporting procedure (and provided the employee has not been prevented or discouraged from using it), “the employer is generally not required to investigate further to uncover unreported hours.” Thus, as an example, employers are not required to sort through various “non-payroll records of employees’ activities, such as records showing employees accessing their work-issued electronic devices outside of reported hours.”

This article is part of a series called COVID-19 Coverage.