Pay Issues When A Business Closes

Hurricane "Sandy" resulted in the temporary closure of many businesses. Extreme weather conditions and other emergencies often raise pay-related questions for employers. Employees may not report to work because of hazardous conditions or your business may close for the day. The issue is straightforward for non-exempt employees (i.e. employees paid on an hourly basis, subject to overtime pay). Non-exempt employees are paid for the actual time worked. Thus, if they do not report for work or the business is closed, they are not paid for the day. An employer may choose to allow these employees to use vacation or other paid time off to cover the lost wages.

The issue is a little more complex for salaried exempt employees. The question of pay is determined by whether or not the employer is open for business and whether the exempt employee works any part of the day. An employer that remains open for business during a weather emergency may lawfully deduct one full-day's absence from the salary of an exempt employee who does not report for work for the day due to adverse weather conditions. In a recent opinion letter, the Department of Labor considers this an absence due to personal reasons; therefore, a deduction of a full-day's pay will not violate the salary basis rule or otherwise affect the employee's exempt status. It should be noted that deductions from salary for less than a full-day's absence are not permitted for such reasons under the wage and hour regulations. The Wage and Hour Division has stated that an employer may, as an option, require an exempt employee who fails to report for work in this situation to take vacation or other paid leave to cover the full-day's absence.

What about the pay of a salaried exempt employee if the business is closed? An employer may not make deductions "for absences occasioned by the employer or by the operating requirements of the business." If the employer closes operations due to weather or other emergency for less than a full workweek, then the employer must pay an exempt employee "the full salary for any week in which the employee performs any work without regard to the number of days or hours worked," because "deductions may not be made for time when work is not available." Again, the Wage and Hour Division has ruled that an employer may direct exempt employees to take vacation or other paid leave in this situation, provided the employees receive in payment an amount equal to their guaranteed salary. However, if an exempt employee has no vacation or paid leave, he would still receive the full week's salary in this situation (where the business is closed for less than a week).

Nonexempt employees paid based on a fluctuating workweek provide yet another challenge. Since an employee who works fluctuating hours for a fixed rate of pay is supposed to get the same pay whether he works short or long weekly hours, the government does not permit deductions for absences of less than a week, whether for illness, personal reasons, or other reasons including the employer's failure to provide work or the inability to reach the workplace because of weather conditions. In other words, whether the business is closed for part of the week or remains open during inclement weather, employees on the fluctuating workweek plan are paid their fixed weekly rate without having to use vacation or paid time off.

SESCO Management Consultants is available to assist with your human resource issues. You may contact us by phone at 423-764-4127 or by email as sesco@sescomgt.com.