In the midst of the COVID-19 pandemic, state and local “stay at home” orders and the resulting financial and business impact, many employers have implemented or are considering a range of workforce planning alternatives to workforce reductions, including moving to a primarily remote workforce, temporary reductions to employee hours or pay (or both), and temporary periods of continued employment without any work or pay (commonly referred to as furloughs). This article addresses some of the frequently asked questions regarding state and local wage payment and notice issues that may arise in connection with such measures.
Q: Nearly all employers now have at least some portion of their workforce working remotely. What state and local compliance issues may be triggered by these new remote work arrangements?
Remote work arrangements may trigger additional paid leave requirements in certain states and cities. For example, Minnesota employers may be surprised to learn that employees who previously worked at the employer’s worksite outside of the cities of Minneapolis, St. Paul or Duluth and who are now working remotely from their homes in one of those cities as a result of the pandemic could now be covered by the cities’ sick and safe time ordinances. For employers operating in the Twin Cities, under the Minneapolis sick and safe time ordinance, employees who perform work within Minneapolis for at least 80 hours in a given year are covered and entitled to accrue and use sick and safe time, regardless of where the employer’s location is and where the employee typically works. The St. Paul ordinance also requires sick and safe leave be provided to any employee who works at least 80 hours in the city of St. Paul if the employer has a physical location in St. Paul. Although the substantive requirements of the ordinances can be met through any combination of existing sick, vacation or paid time off entitlements, employers with newly covered employees (i.e., employees who live in Minneapolis or St. Paul and have or will work 80 or more hours from home) should confirm that existing entitlements provide at least as much leave as required by any applicable ordinance and such employees are allowed to use the leave for all of the reasons and under the same conditions required by the ordinances.
The City of Minneapolis has answered frequently asked questions about how its ordinance will be interpreted during the COVID-19 pandemic, which are available on the City’s website. However, this guidance does not address the question of whether the City will continue to enforce the ordinance during the pandemic against non-resident employers whose employees are now working remotely from their Minneapolis homes.
Dozens of states and cities have enacted similar laws over the past decade, some of which also apply when employees work from their homes in those locations. Employers should consult with legal counsel and check local laws in any jurisdiction where they may now have employees working remotely from home to determine whether they are subject to any new requirements, and whether such requirements differ from what the employer already provides under its existing paid time off or sick leave policy.
Q: What wage payment issues should employers keep in mind as they consider temporary cost-cutting measures such as a reduction in employees’ pay or hours?
Employers contemplating reductions to employee hours, including furloughs, and/or pay reductions should distinguish between employees that are exempt under the Fair Labor Standards Act (FLSA) and those that are non-exempt, for whom the applicable wage payment considerations will differ.
- Exempt employees generally must be paid their full salary for any workweek they perform any services to maintain exempt status. For mandated unpaid time off, avoiding payment of salary to exempt employees requires that employees not be permitted to perform any work during the entire workweek. Therefore, if an employer wants to avoid paying a salary to exempt employees during a temporary furlough, then the employer should inform such exempt employees in writing that they may not perform any work during the week in which the employees are not being paid, and steps should be taken to prevent exempt employees from working during any “off” week. These steps may include cutting off employees’ access to email and telling other employees not to contact the exempt employees for assistance.
- An employer may change work hours expectations for exempt employees from 100% (full-time) to some other percentage, and reduce salary accordingly, resulting in a salary cut for the employee. This type of pay reduction may be implemented temporarily, but because exempt employees are to be paid a salary for a particular job and such salary should not be tied directly to the number of hours worked, the employer should be careful that this option does not result in “counting hours” for exempt employees in a manner that may put at risk the employees’ exempt status. In addition, when implementing any salary reductions, employers must be aware of the current minimum weekly salary for exempt employees under the FLSA ($684/week) and any applicable state or minimum salary requirements for exempt employees that are greater. For example, in California the minimum weekly salary for exempt employees of employers with more than 25 employees is $1,040/week, and in New York City the minimum weekly salary for exempt employees is $1,125/week.
- Non-exempt employees, on the other hand, must only be paid for the hours they actually work. As a result, some employers may decide to limit a furlough or other hours reduction to non-exempt employees to avoid the FLSA risks associated with not paying exempt employees (and a concern that such employees may in fact perform some work, triggering payment of their weekly salary).
Employers may consider temporarily reclassifying an exempt employee as either an hourly, non-exempt employee or a salaried, non-exempt employee (which can include a salary below the FLSA’s threshold for exempt employees of $684/week). Either approach could allow for the employee to work some limited hours, but should be considered carefully before implementing.
If employees’ pay is reduced temporarily, employers should communicate to employees the anticipated duration of the reduction in advance, including not adjusting pay for, or reclassifying, exempt employees during the middle of a workweek. Employers also should preserve the right to modify or extend such pay changes. Employees may be eligible for unemployment insurance (UI) benefits depending on the percentage of pay reduction, the amount of post-reduction salary, and applicable state law UI requirements and limitations. Employers may want to consider the impact of work hour and pay reductions on UI benefits eligibility before implementing any such reductions.
Q: What notice obligations may be triggered by a reduction in employees’ pay, hours or other terms of employment?
Under the FLSA, an employer may reduce an exempt or non-exempt employee’s salary prospectively without any specific form or period of advance notice before the start of the workweek in which the pay change will take effect. However, in some states employers may be required to provide certain notices to employees in connection with pay changes, including temporary pay reductions. For example, the Minnesota Wage Theft Prevention Act requires Minnesota employers to issue new wage theft notices to affected employees in the case of any change to the employees’ pay, hours, exempt status, paid time off accrual rate or terms, or benefits (other than as a result of termination). The Minneapolis Wage Theft Prevention Ordinance, which applies to all employees (including temporary and part-time employees) who perform at least 80 hours of work within the city of Minneapolis in a calendar year, including such employees who reach such work hours threshold by working from home within the city of Minneapolis, also requires employers to provide notice of such changes, with a critical distinction: a change notice for a Minneapolis employee related to any pay reduction must be signed by the employee. Such notices — under the state law or city ordinance — must be provided prior to the date the changes take effect, and with respect to the Minneapolis notice must also be signed by the employee before they are effective. Because these changes are not likely to be favorable to employees, employers with employees covered by the Minneapolis ordinance (which may, for the reasons described above regarding newly remote employees, be a larger population than it would have previously) should consider how they will handle situations in which employees refuse or neglect to sign the change notice. In addition, for employees who are newly covered by the Minneapolis ordinance because they have now worked from home in Minneapolis for 80 or more hours, employers are required to provide full wage theft notices including all information (not just the pay change information) required by the ordinance. Under both Minnesota law and the Minneapolis ordinance, employers are required to retain records of the change notices for each employee.
Similar wage notice requirements may apply in other states and localities. For example, in California, an employer must notify exempt employees of changes in pay rates or paydays prior to the changes. California’s Wage Theft Protection Act, which applies only to non-exempt employees, requires that the employer notify the employee in writing of any changes to the information set forth in the Notice to Employee (required to be provided to non-exempt employees when hired, which requires disclosure of rate(s) of pay) within seven calendar days after the time of the changes, unless one of the following applies: (a) all changes are reflected on a timely wage statement furnished in accordance with California Labor Code section 226, or (b) notice of all changes is provided in another writing required by law within seven days of the changes.
In some states, reductions to an employee’s hours may also trigger an obligation to provide certain unemployment benefits information to affected employees. For example, the Indiana Department of Workforce Development requires employers to provide certain information to employees at the time of separation from employment, including advising such employees that they may file a UI claim in the first week that employment stops or work hours are reduced and informing such employees of the information they will need to provide when applying for UI benefits. In Minnesota, Governor Walz’s Executive Order 20-05, issued on March 16, 2020, and amended on April 6, 2020, requires employers to “notify separated employee that they can apply for unemployment insurance benefits.” This new requirement does not appear to apply in the case of a reduction in hours or furlough, but Minnesota employers may nevertheless want to provide that information to ensure employees are aware of the unemployment benefits to which they may be entitled. Similarly, in other states that require specific UI benefits information be provided to employees upon separation from employment, such as California and New York, it may be required or recommended that employers also provide such information when an employee is furloughed or the employee’s hours/wages are reduced such that the employee may qualify for UI benefits.
The above summarizes only some of the state and local wage payment, notice and other obligations employers should consider when evaluating and implementing workforce planning alternatives. Additional guidance related to furloughs and workforce reductions can be found here.
Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.