HR Hotline: Can We Cut Hours During Slow Periods?

Q: Can I require my staff to take a reduction in hours during a slow period for business?  

A: Generally, yes. Connecticut employers can typically reduce employees’ scheduled hours when business slows down.  

Unless an employment contract, collective bargaining agreement, or other legal restriction says otherwise, employers generally have the flexibility to adjust work schedules based on business needs.  

For example, an employer may decide to reduce employees’ schedules from 40 hours to 32 hours per week rather than lay off staff.  

However, employers should consider how these changes may affect wages, unemployment benefits, health insurance, and other legal obligations before moving forward.  

Paying Employees 

Whether an employer must pay for hours that an employee is no longer scheduled to work depends on whether the employees are exempt or nonexempt.  

For nonexempt employees, employers generally only need to pay for hours actually worked. Employees must still be paid for all time worked, including any work performed outside their reduced schedules.  

For salaried exempt employees, the rules are different.

Exempt employees generally must receive their full salary for any workweek in which they perform work.

Under the federal Fair Labor Standards Act, exempt employees generally must receive their full salary for any workweek in which they perform work, even if the employer does not have enough work to keep them busy for the entire week.  

For example, an employer generally cannot reduce an exempt employee’s paycheck simply because the employee was told not to report to work on Friday due to a lack of work.  

Employers may be able to implement a prospective salary reduction in certain circumstances, but they must ensure the changes comply with federal and Connecticut wage and hour requirements.  

Unemployment Benefits 

Employees do not have to be completely out of work to qualify for unemployment benefits in Connecticut.

Employees whose hours and earnings are reduced may qualify for partial unemployment benefits, depending on their circumstances.

The Connecticut Department of Labor determines eligibility and benefit amounts.  

Options

Connecticut’s Shared Work Program allows eligible employers to temporarily reduce employees’ hours while employees receive unemployment benefits to help offset some of their lost wages.  

Under the program, employers can generally reduce participating employees’ normal weekly hours and wages by 10% to 60% as an alternative to layoffs.  

This may be a good option for employers who expect business to pick back up and want to avoid losing experienced employees in the meantime.  

Employers must meet eligibility requirements, including having at least two participating permanent employees, and receive labor department approval before participating.  

The program is not intended to cover routine seasonal slowdowns or recurring shutdowns.  

What Happens to Employees’ Health Insurance? 

You may also be wondering, what happens to employees’ health insurance if their hours are reduced?

This is certainly something employers should review before making any reduction in an employee’s hours.

Employers should consult with their insurance broker or benefits administrator to determine how the changes may affect coverage.  

Many employer-sponsored health insurance plans have minimum-hour requirements. Depending on the plan, reducing an employee’s schedule could affect their eligibility for coverage.  

For example, an employee whose schedule is reduced from 40 hours to 25 hours per week may no longer meet the plan’s eligibility requirements depending on your specific policy. 

Many employer-sponsored health insurance plans have minimum-hour requirements.

However, that does not necessarily mean their coverage can be terminated immediately.

Under the Affordable Care Act, applicable large employers generally must offer qualifying health insurance coverage to full-time employees. For these purposes, full-time generally means averaging at least 30 hours per week or 130 hours per month.

Employers using the look-back measurement method may be required to continue treating an employee as full-time during an applicable stability period, even if their hours fall below 30 per week.  

If an employee loses health insurance coverage because of reduced hours, federal COBRA or Connecticut continuation coverage requirements may apply.  

It should also be noted that employers participating in Connecticut’s Shared Work Program generally must maintain affected employees’ fringe benefits in accordance with the program’s requirements.  

Reduction of Hours vs. Layoffs 

Naturally, employers often wonder if it is better to reduce employees’ hours or to lay them off. Cue the lawyerly response—it depends.  

If the slowdown is expected to be temporary, reducing hours may make more sense. Employers can lower payroll expenses while retaining experienced employees and avoiding the costs of hiring and training replacements when business improves.  

The downside is that employees may struggle financially with reduced pay. Depending on how long the reduction lasts, employers may also risk losing employees who need more consistent hours.  

If the slowdown is expected to be temporary, reducing hours may make more sense.

Layoffs may be more appropriate when the slowdown is expected to be long-term or the employer cannot sustain its current staffing levels.  

However, layoffs come with their own considerations, including unemployment claims, separation requirements, health insurance continuation obligations, impact to the reputation of the company, employee morale, etc.  

Employers should also keep in mind that unemployment claims resulting from layoffs or reduced hours may affect their future unemployment insurance rates.  

FMLA or Paid Sick Leave Implications

An employer may reduce the hours of an employee who recently took FMLA or Connecticut paid sick leave, provided the decision is not related to the employee taking protected leave.

But, employers cannot reduce an employee’s hours in retaliation for requesting or taking leave under the FMLA, Connecticut FMLA, or paid sick leave.  

Employees who have taken protected leave are not categorically excluded from legitimate reductions in hours.  

The important question is whether the employee’s hours would have been reduced regardless of their protected leave.

For example, if an employer reduces an entire department’s schedules from 40 hours to 32 hours because business is slow, an employee who recently returned from FMLA leave may generally be included in that reduction. 

The important question is whether the employee’s hours would have been reduced regardless of their protected leave. It is important to apply reductions fairly and consistently. 

Employers should be particularly careful when reducing the hours of an employee who recently requested or returned from protected leave, as the timing could raise concerns about retaliation.  

Employers should use objective criteria, document the business reasons for the reduction, and ensure that protected leave is not considered negatively when deciding whose hours to reduce.  

Handle It with Grace (and Compliance!) 

Before changing schedules, employers should review any employment agreements, collective bargaining agreements, and/or existing policies that may limit their ability to do so.

They should also ensure that changes comply with wage and hour requirements, particularly for salaried exempt employees.

Employers should consider how reduced hours may affect health insurance, paid leave, retirement benefits, and employees’ eligibility for unemployment. 

it is better to be upfront than make promises the business may not be able to keep.

As a matter of best practice and in the interest of the employee experience, communicate with employees.

Explain why hours are being reduced, when the changes will take effect, and whether the reduction is expected to be temporary.

If there is no clear timeline for when hours will return to normal, it is better to be upfront about that than make promises the business may not be able to keep.  

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HR problems or issues? Email or call CBIA’s Diane Mokriski or Delmarina López at the HR Hotline (860.244.1900). The HR Hotline is a free service for CBIA member companies and is intended to provide general information and does not constitute legal advice. Please consult with legal professionals for specific guidance for your specific situation.