One common alternative to layoffs is to reduce work schedules and cut pay. This creates an issue for exempt employees under the FLSA, who are entitled to their full weekly salary for any week in which they work any hours. To avoid destroying the exemption, such changes must not occur so frequently that the employee is effectively being paid based on hours worked. See Archuleta v. Wal-Mart Stores, 543 F.3d 1226 (10th Cir. 2008) (“If . . . the salary changes are so frequent as to make the salary the functional equivalent of an hourly wage, we will treat the ‘salary’ as a sham and deny the employer the FLSA exemption . . .”). How many salary changes are permissible – and how frequently – is a matter for discussion with counsel.
State laws may be even more strict. For example, the California Division of Labor Standards Enforcement appears to take the position that pay cuts coupled with schedule reductions are always an attempt to treat exempt workers like hourly employees, thus destroying the exemption under state law.