If the recession doesn’t kill you, the recovery will is an expression that has made an impression on a number of companies. Personnel have been cut to the bone and companies are realizing that former employees walked away with institutional intelligence.


Robert Olson, Winnebago Industries’ CEO uses furloughs and moved to a four-day work week to remain poised for the market’s turn around. Olson said, “You can’t cut your way to prosperity.”


Furloughs (temporary lay-offs) are growing in popularity. Furloughs can reduce overhead expenses and retain employees. Until recently, furloughs were thought to reduce morale and productivity. However in these times, employees feel a shared sense of responsibility and are grateful to keep their jobs, despite a reduced salary.


“Stay home days” have been used in hospitals to quickly balance hourly personnel with patient census. Do not attempt to quickly adjust exempt personnel hours and compensation.


The Fair Labor Standards Act (FLSA) clearly states exempt employees must be paid the same salary for each pay period regardless of the amount or quality of work performed. Plus, the salary may not be reduced for “absences occasioned by the employer or by the operating requirements of the business.” Failure to comply with these regulations jeopardizes the employee’s exempt status and may result in back-overtime-pay up to two years and up to three years for willful violation.


Companies may furlough exempt employees without penalty as long as it is well-planned. Effective, legal methods including furloughing an entire workweek, reducing salary on a going – forward basis, and using vacation or PTO time in lieu of unpaid time.


Exempt employees do not have to be paid for any workweek in which they perform no work. The employer needs to make it clear that any type of work is prohibited including email and phone communication.


A wage reduction need not be matched with reduced hours, though it may be more palatable. A salary matched to a shortened workweek has been implemented frequently and successfully.


Carefully consider the use of vacation or PTO time in lieu of time off during a furlough. Indiana allows the employer to mandate its use as it is seen as a fringe benefit. Because FLSA doesn’t require vacation time, they do not regulate it. Should you mandate its usage for exempt employees, determine what you will do when no available time off balance exists. The employer will still be required to pay their full salary. Littler Employment & Labor Law Solutions Worldwide recommends voluntary use of vacation time as the safest route.

Furlough Consideration Checklist

• Establish and document your definition of your seven-day workweek.
• Furlough employees for full weeks which match your defined workweek

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• Inform employees that no work is permitted during furloughs, including any work- related communications.
• Should you make a change in the workweek schedule from five-days to four-days with a 20% reduction in salary, make sure the salary meets the $455 minimum weekly salary requirement and provide employees notice in advance.
• Provide employees advance notice of furlough days.
• Decide in advance how vacation and other time off benefits may be used. Establish a policy, if it is not already in place.
• Check your collective bargaining agreements.

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