62 | Massachusetts Wage & Hour Peculiarities, 2025 ed. © 2025 Seyfarth Shaw LLP day” and the deduction causes the employee to accrue a negative leave balance, the employer cannot recoup the negative leave balance without subjecting the employee to a pay deduction for a partial-day absence with possible adverse consequences for the exempt employee status. A policy or practice of such deductions may violate the requirements of the salary basis test and, as explained below, could potentially destroy the exempt status of part or all of a company’s exempt workforce. Therefore, if an employee has taken more leave than he or she has actually accrued under the employer’s plan, it is not advisable for the employer to attempt to recoup the negative leave balance from the employee’s salary, including from the employee’s final paycheck. (6) Responses to Downturns in Business: Reductions in Pay and Furloughs During downturns in business, an employer may look for ways to cut costs without reducing its workforce by decreasing the salary and hours of exempt employees. For example, an employer may seek to reduce employees’ workweeks to four days per week and implement a corresponding 20 percent reduction in salaries. Although the law regarding reductions in an exempt employee’s work schedule and pay remains somewhat unsettled, courts have held that prospectively reducing an employee’s salary and work schedule does not destroy the employee’s exempt status, so long as such adjustments are not a “sham” meant to circumvent the overtime laws.351 Such adjustments must be relatively infrequent and remain in effect for a substantial period of time.352 Due to the complexity of the law in this area, employers should consult legal counsel prior to implementing any such adjustments to an exempt employee’s pay and schedule to minimize the risk of violating the salary basis test. Under limited circumstances, employers may also choose to place exempt employees on unpaid leave or “furlough.” To avoid running afoul of the requirement that an exempt employee receive full salary for any week in which he or she performs work, the furlough must be imposed in fullweek increments.353 If the employee performs any work at all during the furlough week—even simply checking his or her company e-mail account—the employee generally must be paid for that full week. As explained above, employers may mandate use of accrued vacation time during a furlough, rather than treating the furlough as unpaid.354 351 See Havey v. Homebound Mortg., Inc., 547 F.3d 158, 167 (2d Cir. 2008) (practice of adjusting salaries prospectively on a quarterly basis based on employees’ performance in the prior quarter did not violate salary basis test); Archuleta v. Wal-Mart Stores, Inc., 543 F.3d 1226, 1231 (10th Cir. 2008) (adjustments in salary and work schedule where average time between adjustments exceeded eleven months did not violate salary basis test). 352 Archuleta, 543 F.3d 1226; but see Thomas v. Cnty. of Fairfax, Virginia, 758 F. Supp. 353, 361 (E.D. Va. 1991) (practice that resulted in changes to employees’ pay rates and salaries in every pay period violated salary basis test). 353 See 29 C.F.R. § 541.602. 354 DOL Wage & Hour Opinion Letter FLSA2009-2 (Jan. 14, 2009). As always, however, employers should exercise caution if the furlough time causes the employee to overdraw his or her accrued vacation, as deductions for the overdrawn amount may increase the risk that the salary basis test could be violated should an exempt employee work during the furlough.
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