During these challenging financial times some employers are finding they need to temporarily reduce costs, including employee payroll. Fortunately, the California Department of Labor Standards Enforcement (DLSE) has recently issued an opinion letter allowing employers to reduce exempt employee salaries in exchange for a shortened workweek. This new August 19, 2009 opinion letter flatly contradicts the DLSE’s prior opinion letter on the same subject.

The DLSE’s new opinion states that an employer seeking payroll savings may properly shorten the workweek from five days to four days and reduce exempt employee salaries by a proportionate 20%. The new DLSE letter specifically states an employer may do this without undermining the exempt status of affected employees under federal or California law. (In its prior opinion letter, the DLSE originally opined that it would not be acceptable to tie an exempt employee’s compensation to the amount of hours or days worked).

The new opinion letter cautions employers that this change in California employee pay is primarily allowed for interim reductions due to temporary economic necessity during which reduction in the work schedule is only a short-term stopgap measure. Furthermore, the affected employees must still earn a monthly salary equivalent to no less than twice state minimum wage for full-time employment. Lastly, the affected employees must continue to satisfy the duties test for the applicable exemption which pertains to their position.

If you have any questions, please contact me or any of our other employment law attorneys.