Businesses are facing difficult financial decisions in the wake of the pandemic and cutting an employee’s salary might seem like a good idea, particularly if they are slacking off. However, employers can land themselves in legal hot water if they reduce an exempt employee's salary without carefully following federal and state wage and hour laws.

To answer this question of whether you can reduce an employee’s salary, we need to start at the beginning.  We have two definitions we need to be clear on - salaried vs. hourly is not always the same as Exempt vs Non-Exempt although some businesses use these interchangeably. 

Exempt means exempt from receiving overtime pay as per the Fair Labor Standards Act (FLSA).  An employee can be salaried but doesn’t necessarily fit the exempt “rules”; meaning you need to pay them overtime if they work over 40 hours, for example.

If someone is not exempt from overtime, you need to pay them overtime whether you call them a salaried employee or not.  

Let’s look at reducing pay.  If employees are classified as exempt, there are only a few reasons you can reduce their pay if they don’t work the full 40 hours.  Here are the full-day deductions if they perform NO work on these days (no email checking, no phoning into the office or answering calls):

• Personal leave

• First or last week of employment

• If they have exhausted or are not eligible for an employer’s bona fide paid-leave plan

• Disciplinary suspension for violation of workplace conduct rules or major safety rules

There are only a couple of scenarios that allow partial-day deductions:

• Federal Family and Medical Leave Act absences 

• Suspensions for major safety violations

Being exempt may offer more flexibility for work schedules but if an exempt employee continuously fails to work a required schedule or the number of hours, the employer should follow its regular progressive discipline process rather than reduce an exempt employee’s salary.