October 24, 2012
Beware of the Payroll Implications of Temporary Shutdowns
The holiday season will soon be upon us again, and some companies consider closing their operations during all or part of a holiday week. Companies planning a shutdown during all or part of any holiday week should consider the effect of a shutdown on their wage payment obligations before finalizing their plans, however.
A company’s obligation to pay wages on days on which it does not operate depends on whether the employees in question are classified as exempt or non-exempt. Employers are generally not required to pay wages to non-exempt employees for any day during which the non-exempt employees do not perform work. The rules regarding payment of exempt employees during shutdown periods are a bit more complicated.
In general, employers are obligated to pay exempt employees their full salary during any week in which the exempt employee performs any services. If an exempt employee does not work on a given day for personal reasons (such as vacation, for example), the employer is typically relieved of its obligation to pay the salary on that day. If an exempt employee does not work because the company does not have work for him or her, or because the company elects to shut down, however, the employer is not excused from paying the employee’s salary on any such days if the employee performed any work during the week. In short, companies may avoid paying exempt employees for an entire work week only during work weeks in which the employee performs no work, and may withhold salary for an individual day only if the employee does not work for personal reasons. Shutdowns lasting less than a full work week do not excuse employers from paying the salaries of their exempt employees on the days in question.
Companies commonly permit employees to utilize accrued vacation or Paid Time Off on any days on which they otherwise would not be paid, but they are not required by law to do so. Employers that do not permit employees to use accrued vacation or PTO on shutdown days risk alienating their employees and creating morale problems for themselves, however.
Employers should also recognize that they have not truly shut down their operations and relieved employees of duty (and relieved themselves of their duty to pay exempt employees) if they require or expect employees to work from home during the supposed “shutdown.” If employees retrieve or send email or Voicemail during supposed “shutdown” days, they are working and are probably entitled to be paid, either for the time devoted to the task (in the case of non-exempt employees) or in the amount of their full salary for the day (and perhaps week, in the case of exempt employees). If an employer intends to implement a shutdown and avoid incurring liability for wages, it must not “look the other way” and permit employees to work during shutdown days.
As they evaluate their wage payment obligations to exempt employees during a shutdown, employers must also remain conscious of the manner in which work weeks are defined. While we commonly think of a work week as beginning on Monday, the legal definition of the work week may differ. Companies are permitted to determine the day and time on which their work weeks begin, but the Labor Commissioner will presume that work weeks begin at 12:01 a.m. on Sunday unless an employer adopts a different schedule.
If you are considering a holiday closure and want to avoid paying wages to employees on the days on which you are shut down, beware of the rules and be careful to follow them closely. If you have any questions about wage payment rules or any other issue relating to employment law, please contact one of our attorneys:
Daniel F. Pyne III
Richard M. Noack
Ernest M. Malaspina
Erik P. Khoobyarian