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As the March 1 “fiscal cliff” looms closer, Congress has given itself a week-long President’s Day vacation, making the prospect of “sequestration”—i.e., massive automatic cuts to federal programs—more likely. Companies that are dependent to any significant degree on federal funding, whether through contracts or grants, now are thinking about furloughing some of their staff once sequestration takes effect. Furloughing hourly workers is relatively simple, so long as any contracts and collective bargaining agreements are complied with. By law, if hourly workers don’t work, they don’t need to be paid. And, the U.S. Department of Labor (DOL) has even announced that the Worker Adjustment and Retraining Notification Act (WARN) won’t apply to layoffs caused by sequestration. But here’s the problem: Most executive, administrative, and professional employees, and some so-called “computer employees” (DOL’s term for programmers and certain other workers), need to be paid on a “salary basis” in order to be exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA). If employers don’t comply with the salary basis test, they could end up owing overtime pay to previously exempt employees. This is not something to take lightly given that 8,000 new FLSA lawsuits are being filed in federal court every year. DOL regulations say that to be paid on a salary basis means to receive a predetermined amount, which is not subject to reduction because of variations in the quality or quantity of work performed. The regulations add that an employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business; rather, if the employee is ready, willing, and able to work, deductions may not be made for time when work is not available. Thus, if exempt employees of private employers are furloughed for a day here and a day there because of funding shortfalls, the effect would be to convert them to non-exempt employees and entitle them to overtime pay in weeks when they work overtime. So, what’s an employer to do? Of course, employers may reassign these employees to commercial work, if that is available, or to business development or privately funded research and development projects. But that’s not necessarily practical. Here are three other solutions based on DOL opinion letters issued over the years:

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