Expert: Shirley McAllister, CPP, PHR - 10/23/2008

Question
My company (in South Carolina) pays us bi-weekly, 26 times a year. They have changed the amount they pay exempt employees each pay period, while claiming that annual salaries are not being changed. However, as an example, I have an exempt employee who is supposed to make $45,000 per year, and he saw his gross bi-weekly paycheck drop from $1730.77 to $1717.56. Payroll says this is because there are more than the 2,080 standard hours in calendar 2008 and they are "correcting" the amount accordingly, dividing by 26.2 instead of 26. His argument, and mine, is that they have actually reduced his salary to $44,656.56 while continuing to claim they have not and kept his $45K figure on the books. Since we are only paid 26 times in any 12-month period, I don't see how he can ever be paid his "annual salary" now, and neither of us see the relevance of the number of hours in the year for a salaried employee. They have done this across the board for all exempt employees, so it is not discrimination. If they admitted they were reducing salaries, I have no doubt the company would be within its rights (and I could give him a raise to compensate), but by claiming to pay one figure while actually paying less, this seems fraudulent, and I imagine there could be a legal problem (and, by keeping the budget figure the same, I can't give him the raise). Is my employee correct, or are they right, and if so, how?

Answer
This is not right unless there are 27 paydays in the year. This is not a year when there are 27 paydays. Usually that is leap year. If there is 27 paydays in a year than the salary may be reduced to accomodate the extra payday and the annual will stay the same.

Other than the above there is no reason the hours would be different and I think the company is in the wrong.

This could be a complaint with the Department of Labor. If salary is reduced they just need to come out and say we have to cut salaries because of financial issues. This is not a correct way to handle it.

Shirley