The hurricanes got me thinking … do employers have to pay their staff during the period that a company is shut down? Hurricanes aren’t the only situation in which a temporary shutdown can arise. A fire, blizzard, government-ordered closure, or any number of other reasons may temporarily force you to close your doors. Understand the legal and practical ramifications for your employees.
Federal law requirements
The Fair Labor Standards Act (FLSA) requires you to pay non-exempt (i.e., hourly) workers only when they actually work. For exempt (salaried) employees, the FLSA requires payment for an entire week, so if your office closes on Wednesday, you owe these workers their salary through Friday. The DOL says, “a private employer may direct exempt staff to take vacation or debit their leave bank account.”
If, because of economic conditions, you want to have a temporary shutdown, you may be required to give advance notice to employees (it depends on the size of your workforce). Find notice requirements under the WARN Act from the Department of Labor.
Also, check state labor law requirements about wage continuation and warnings requirements.
It’s been reported that 78% of full-time workers in the U.S. live paycheck to paycheck. Even if you aren’t required by law to continue workers’ wages during a temporary shutdown, you may want to do so to help your staff during a difficult time.
You may recall the story in the 1990’s about a textile mill owner who paid his 3,000 workers their full wages for 60 days after the mill burned to the ground, costing him $25 million. As he said, “I think it was a wise business decision, but that isn’t why I did it. I did it because it was the right thing to do.”
But how can a small business owner afford to continue paying workers? It may be difficult to do, but here are some options to help:
- Create your own disaster emergency fund. Use retained earnings to cover wages and other disaster-related costs.
- Carry business interruption/continuation coverage. This insurance pays your overhead, including wages and payroll taxes, during a shutdown (up to the limits of the policy).
- Check for tax breaks. The Disaster Tax Relief and Airport and Airway Extension Act of 2017 offers eligible employers an employee retention tax credit of 40% of wages (up to $6,000 can be taken into account).
If you have legal concerns about whether and to what extent you must continue wages, consult with an employment law attorney. The cost of the consultation is less than penalties you could receive for violating the law.