How can we save on payroll but still have employees work their full schedules?

Q. We are having trouble making payroll and have asked our employees to give up pay for 20 hours per month while they work their regular schedules. Can we do this?

A. Under the Fair Labor Standards Act (FLSA) and similar state wage laws, you must pay employees for all hours worked, and an agreement to forgo earned wages is unenforceable. If you are having trouble making payroll but wish to retain your employees while you weather the storm in this bad economy, reducing wages may be your best—and only—option.

Be sure to carefully review and comply with any applicable personnel policies, employment agreements and collective-bargaining agreements before you implement a pay reduction.

Also, keep in mind that asking a salaried exempt employee to give up pay may defeat his exempt status. If a salaried, exempt employee performs any work in the defined workweek, he must be paid his full salary for the full workweek to preserve the FLSA exemption.

More important, the employer may not simply reduce the exempt employee's pay to reflect reduced hours occasioned by the employer. The FLSA requires that if an exempt employee is willing and able to work, he must be paid the full salary.

An employer may, however, require an exempt employee to take a full workweek off without pay, without losing the exemption. Alternatively, it can institute a fixed workweek reduction plan accompanied by a reduction in salary. The latter should not be done on an ad hoc basis, but should be a bona fide program that is not intended to circumvent the FLSA's salary requirements.