I run a commercial printing business with 10 employees. Our business has suffered with the recession, and I desperately need to cut payroll, but I really don’t want to let anybody go.

We’ve become like family, and I know when the economy improves I will need every one of them. I understand that in lieu of downsizing someone, you can reduce all of your employees’ salaries across the board, or ‘furlough’ them by reducing their working hours. What are some of the legal things you need to think about before you do that?

PAYROLL, or “headcount”, is the first place many owners look when they’re looking to trim costs, but one of the most painful experiences any business owner will face is terminating a good, faithful, hard-working employee due to “economic conditions”.

“Halfway” measures, such as reducing all of your employees’ salaries or working hours (called a furlough), are seen by many owners as a way to reduce costs while avoiding painful job cuts.

But just because “everyone’s doing it” doesn’t mean it’s the right thing for your business, says employment lawyer Roseann Padula of Sullivan Schoen Campane & Connon, LLC (www.sscc-law.com/ourattorneys-padula.php).

While acknowledging that it’s painful, “eliminating and restructuring jobs may be the best thing for your business in the long run,” said Padula, explaining that: “It’s a one-shot deal – when it’s done, it’s over, and everyone understands where they stand.”

Even if spread across the entire company (including perhaps – ahem – yourself), furloughs and salary reductions are often seen as penalising your successful performers who, after all, are the ones you most strongly wish to retain in a difficult economy.

“It’s the ‘Death of a Thousand Cuts’ – long, painful and insecure,” said Padula. “It’s likely going to be at least a one-year impact on your employees’ income, and there’s the risk your good employees will jump at the first chance to move to a better-paying position.”

If you do decide that furloughs and salary reductions are the best approach for your business, here are some of Padula’s tips for doing it the right way:

. Look at your contracts and employment offer letters.

If you have written agreements with your employees saying they “will” receive a certain salary and benefits or are guaranteed a set number of hours per year during the life of the contract (including collective bargaining agreements if you have unionised employees), then you cannot unilaterally reduce their pay or hours without breaching their agreements and exposing your business to lawsuits.

“Promises you make during employment interviews, and the rosy, glowing forecasts you make during sales meetings can be problems as well, because in some (US) states they have been construed as implied contracts,” said Padula.

. Make sure your hourly and salaried employees remain properly classified.

Padula cautions that employees who receive a fixed salary regardless of the number of hours worked (called “exempt” employees under federal and state wage and hour laws) may be reclassified as hourly (or “non-exempt”) employees if you improperly tie their salary reduction to a reduction in hours worked.

. Check your state unemployment compensation laws.

In some states, significant reductions in hours (especially for hourly employees) may trigger a right to unemployment benefits, which could increase the payments you make into your state unemployment compensation system.

. Watch out for unlawful discrimination.

If the only employees you furlough are those protected by employment discrimination laws, you may be opening your business up to a lawsuit.

“Make sure there is a connection between the workers who are impacted and your business needs,” cautioned Padula, adding that furloughing only your most highly paid senior employees is “a really, really bad idea” if they are also your oldest workers.

. Don’t violate your own rules.

If you tell employees to take Fridays off without pay, warned Padula, “Don’t call them on Friday to ask them questions. They are not to work at all during the furlough time.”

Padula added that if you send a non-exempt employee an e-mail on Thursday night, and he replies on the Friday morning he is not paid, this could lead to an investigation by your state Department of Labour for wage and hour violations. The problem is more difficult to manage, Padula said, if you cut back a number of hours each working day rather than cutting an entire day each week, because “it’s very difficult for conscientious workers to stop working precisely on time when the rest of the world is still open for business”.

. Be careful how you communicate changes both inside and outside the company.

“You don’t want your sales people whining to customers about their hours being cut, because your customers will start thinking you’re in trouble,” explained Padula.

The bottom line, noted Padula, is to review your furlough and salary reduction plans with a competent employment law attorney before you execute them.

– Creators News Service