Voluntary Unpaid Vacation (6/10)

We are trying to cut costs and are considering asking employees to volunteer to take an unpaid week off from work.  Is this practice legal?

As the current economic downturn begins to show some signs of a slow recovery, employers in all industries are still looking for creative ways to cut expenses without cutting staff.  One such practice is requiring employees to take unpaid vacation.  For example, Dell Computers made the news in late 2008 when it asked employees to consider taking up to five days of unpaid leave as part of a package of cost-cutting measures.  While it generally is legal to require employees to take full weeks off, this practice may not achieve the results you expect.  Let’s take a look at the legal issues first, and in particular the treatment of nonexempt and exempt employees under the Fair Labor Standards Act (FLSA).      Nonexempt employees are those employees who are covered by the FLSA’s overtime and minimum wage provisions.  Nonexempt employees only have to be paid for time actually worked and generally do not have to be guaranteed any specific number of hours of work in a week (assuming they are not covered by a collective bargaining agreement or a contract specifying otherwise).  Accordingly, you can ask (or even require) your nonexempt employees to take an unpaid week off.  You also can require them to take just a day or less off without pay.      Exempt employees should be handled a little more carefully. They are exempt from the FLSA’s minimum wage and overtime requirements because of the nature of their job duties and the fact that they are paid on a salary basis.  The most common exempt classifications include executive, administrative, and professional employees, outside sales employees, highly-skilled computer-related employees, and highly compensated employees.        The term “salary basis” is defined by the FLSA regulations as the payment on a weekly or less frequent basis of a predetermined amount that constitutes all or part of compensation, without reductions for variations in the quality or quantity of the work performed.  Under this definition, exempt employees generally must receive their full salary for any week in which they perform work, without regard to the number of days or hours worked.      However, you do not have to pay exempt employees for weeks in which they perform no work.  Therefore, as long as you are asking exempt employees to take a full week off, you will not jeopardize their exempt status.  Note, though, that you should not ask exempt employees to take less than a full week off unpaid.  As long as the employee is ready, willing, and able to work, reductions in pay may not be made for time when work is not available in a week when the employee has performed work.  Deductions may be made for less than full weeks only in limited circumstances, such as for full day absences for personal reasons or under a bona fide sick policy.  Even a “voluntary” unpaid day off likely would not meet these criteria, though, particularly if it is initiated by the employer.      While voluntary unpaid vacation weeks have helped some companies manage short-term cash-flow problems, others have found that it creates planning and administrative hassles.  On the one hand, if too many employees take the unpaid time off, you may experience staffing problems.  Alternatively, if too few employees take you up on the offer, you may have to be prepared to engage in other cost-cutting methods, such as reduced work hours or temporary layoffs.  In addition, you have to consider potential negative employee reactions, particularly by employees who are financially unable to take an unpaid week off but who feel pressured to do so.  So, make sure you have thought through all of the potential risks and benefits of a voluntary unpaid vacation policy before you implement one.