Pay Options for an Exempt Employee - labor law

Workforce, Sept, 2001 by Matthew T. Miklave, A. Jonathan Trafimow

Q: Can an exempt employee be paid hourly? I have found so much contradicting information. We have an exempt employee in non-profit and the supervisor wants to cut back the employee's hours during the summer due to lack of programming. What would be the best way to do this and handle her pay? The employee has not been with us for a year and would not qualify under our policy for leave of absence.

A: There is no easy way to deal with the situation you are facing. We start with the premise that an exempt employee and an employer have an implicit "deal:" the employer is not obligated to pay the employee overtime when the employee works more than 40 hours per week and the employee gets paid the same salary when he or she works less than 40 hours per week.

The regulations implemented under the Fair Labor Standards Act specifically provide that as long as the employee is ready, willing and able to work, an employer may not reduce salary because of lack of work. See 29 C.F.R. Sec. 541.1 18(a)(1). An employer need not pay a full week's salary when the employee absents him or herself from work for personal reasons, during the first week of work, during the last week of work, during any week when the employee performs no services at all (this means no services, zilch, nada, nothing), and while the employee is on an approved FMLA leave. An employer also need not pay when the employee is absent due to his or her own illness or injury and the employer has a policy calling for payment under such circumstances and the employee either does not qualify or has exhausted the leave entitlement. (In most cases, the employer must dock in one-day increments.)

How could you cope with the problem? Well, you could lay the employee off completely. On the other hand, maybe it would be better to convert the employee to an hourly employee. If you do that, you would be stuck with that designation (you probably could not get away with converting the employee back to exempt when times got better). Finally, here is a very non-HR friendly option: lay off the hourly workers and assign the duties to your exempt staff. (Because you do not have to pay overtime, you can assign the exempts to do some non-management work and just say, times are hard, we all have to do our share.)

Admittedly, these are hard choices. Good luck and let us know what you decide to do.

Who Gets Paid Leave?

Q: We are a small company (eight employees) and one of our employees became pregnant within four months of hire. She is a excellent employee, and wants to return after the baby is born. We have no written policy on maternity leave, but would like to pay half her salary for six weeks. Does this obligate us to provide paid leave for other employees should they become pregnant? Please advise soon. She's due in three weeks!

A: We do not talk about "maternity leave" anymore. We talk about either "disability leave" or "family leave." Title VII of the 1964 Civil Rights Act prohibits discrimination on the basis of gender. (Who is in this "protected class?" All men and all women, which is pretty much everybody.)

The 1972 Pregnancy Discrimination Amendments banned discrimination on the basis of pregnancy status and basically required that an employer treat a pregnancy-related disability the same as any other disability under its policies. So, the employer could not have one policy for paid leave for Charlie when he had a heart bypass and another policy for paid leave for Charlene when she had a baby. The good news? If you only have eight employees, neither statute applies to your company The bad news? There is probably a state statute that does the same thing.

You should speak to legal counsel, who can help you adopt some policies to permit you to deal with your employees on an equitable basis. After looking at your state's law and the plans you have for the company, your attorney can help develop a policy that treats pregnancy disability the same as other disabilities. If you wish to adopt a paid time-off plan when a person becomes a parent (by childbirth or adoption), that would probably be fine, as long as men can take advantage of it on the same basis as women.

Contractor Performance

Q: What is the best way to approach performance issues with an independent contractor? Should I use the same progressive disciplinary layout with the written warning and details? What is needed?

A: Imagine the guy you hired to build your house was doing a crummy job. Would you give him or her or it (assuming it is a company) a verbal warning, followed by a written warning, followed by a suspension without pay (like the contractor would not suspend work on your project at random intervals and without reason anyway, but we digress)? Just tell the contractor to fix it!

As you may be able to tell, we view the relationship one has with an independent contractor as being fundamentally different from the relationship one has with an employee. "Progressive discipline" sounds as if the person being "disciplined" is an employee. We like to put performance standards into the independent contractor agreement. We try to make them measurable. We then make sure the independent contractor complies with the contract. Such contracts usually provide for an opportunity to "cure" any defects on deliverables. Thus, notice of the breach and an opportunity to cure may look like a warning, but it is simply a contract provision.