COVID-19 return to work: potential liability for loss of exempt classification

COVID-19 will create lasting changes in workplaces across all industries and for employers of all sizes. As companies start to grapple with the complex legal, medical, and ethical considerations surrounding the reopening of the workplace, wage and hour and pay equity issues must remain at the forefront of the decision-making process.

Potential reasons for loss of exempt classification

Implementing uniform compensation reductions across a workforce is becoming a common tool for lowering payroll expenses while continuing to maintain a full workforce. When calculating reductions in salary, employers must ensure that any changes won’t result in exempt employees falling below the applicable federal, state, and local minimum salary levels to qualify for the overtime exemption. Before implementing any salary reductions, an employer should conduct a base salary review to determine whether the reduction will result in the loss of exempt classification. If a reduction would drop any exempt employees below the minimum salary level, the employer must determine whether the employees will be paid only the minimum salary level to retain their exempt classification or be reclassified as nonexempt and paid on an hourly basis.