When you’re running a small business that employs other people, there are hundreds of moving pieces to think about. One of the big ones you need to get right? The number of hours that your team works.
Whether you work with full-time salaried staff, a group of part-time hourly employees, or even a mix of both, exactly who is at work each day and for how long has a big impact on your business’s bottom line. In fact, wages and salaries account for nearly 70 percent of expenses for most businesses.
When something plays such a huge role in your business, sometimes it leads to tough decisions. Cutting employee hours might be one of them.
We’re here to walk you through the rules and regulations you need to follow, along with some tips on how to break the news. It’s never an easy conversation to have (and it’s normal to feel a little nervous), but this guide will prepare you to address the topic with confidence.
What Exactly Do You Say in a Convo on Cutting Hours?
Before any formal communication like a letter or email is sent to an employee about changing their hours, it’s best to meet face-to-face. Not only is this a courteous thing to do, but it gives your employee a chance to ask questions or negotiate with you. In the end, that will leave them more satisfied than they would be otherwise.
Explain why you’ve asked to speak to your employee. Let them know that their hours are being cut, when the new hours will start, and the reason why you made this decision. Be sure to emphasize that this is through no fault of their own and isn’t a reflection on their job performance. If it is related to their performance, you’ll also need to be prepared to discuss those issues and the improvements you expect to see.
You don’t need to go into great detail about why, but being upfront and honest can help manage pushback or negative feelings from the employee and the rest of the team once they find out. This is especially important if you’re making cuts for multiple team members at the same time.
You never know what questions your employee will have, but they’ll probably have questions about:
- Overtime pay if they’re a non-exempt employee
- Benefits like health insurance or time off
- If this is a permanent reduction in hours or temporary. If the latter, let them know long it will last if you can.
Once their questions have been answered, say you’ll follow up with a formal letter or email to confirm everything in writing.
What to Include in a Letter or Email Confirming an Employee’s Reduced Hours
When writing a letter to a team member about cutting their hours, keep the language simple and easy to understand while including details about:
- What’s happening: Say their hours are being reduced and provide an explanation of what this means for them specifically.
- Why this is happening: You don’t need to go into depth since you’ve already spoken to them in person, but a sentence or two on why this is necessary will help them see the big picture (and realize it’s not about them!).
- When the new hours will start: Make sure you give your employee at least several weeks’ notice before the changes happen. That way they can prepare for a drop in income.
- If any of their benefits will change: This is important to outline from both a practical and legal perspective.
- Any related laws: Include information about any federal, state, or local laws on minimum wage, overtime, and classification status that you’re following.
- Contact details for HR: Employees should always have an option to approach HR with any questions or issues.
Template for Reduction of Hours Notice
To give you an idea of what this looks like, here’s a sample for you to adapt with your HR team:
Dear [employee name],
We regret to inform you that, due to [list your reason here—budget cuts, lack of work, company reorganization, etc.], we will be reducing your working hours from 40 hours per week to 20 hours per week.
Your new schedule will be Monday to Friday, 8 am to 12 pm. Your accrual of sick leave will be reduced from 2 hours per month to 1 hour per month, and your accrual of annual leave will be reduced from 4 hours per month to 2 hours per month.
As a non-exempt employee, as defined under the Fair Labor Standards Act, your hourly salary will remain at $15 per hour. You will be paid accordingly for the hours worked.
The new schedule will be effective from [date] and will operate until further notice. As soon as I have any additional information about how long these arrangements will be in place, I will let you know.
If you have any questions or concerns, please contact your supervisor or me.
[Head of HR]
Why You Might Consider Cutting Employee Hours
The tough economic conditions brought on by the COVID-19 pandemic have forced many small businesses to scale back and adjust the work schedules of their employees. A recent study found that nearly 23 percent of business owners had reduced their hours of operation (which also reduces employee work hours) due to struggles in the labor market.
Cutting hours allowed businesses to keep high levels of employee retention and avoid layoffs, while also lowering expenses like payroll and benefits. It’s not as drastic as completely saying goodbye to valued staff. But it’s definitely a step that can help balance a sinking ship.
Reducing hours can also help your reputation. Some companies publicly report their layoffs and, even if they don’t, word can spread around a community quickly. Cutting hours of work, though, typically stays internal. If you’re hoping to create new jobs and rehire in the future, maintaining a positive image is important.
Potential Consequences and What You Can Do about Them
Before you head off to talk about reduced hours with your human resources team or even your employees directly, it helps to know about some of the problems you might encounter.
Firstly, there’s the loss of staff, which might seem obvious, but don’t forget that means you’ll have a bunch of work that still needs to get done. The rest of the team will have to pick up the slack and make the money you need to survive. It’s smart to have a plan for delegating work so that everything still gets done without anybody burning out.
You also need to account for certain shifts not being covered and how employees might feel about moving their existing shifts around. For example, a single parent may be working around a school schedule or fixed childcare arrangements. Changing the shift of even this one person can be incredibly disruptive to both their life and the rest of the team. When talking through reduced schedules and hours, ask questions about employees’ preferred shifts to accommodate their needs as best as you can.
Team Morale Issues
Keep in mind that your employees will talk to each other. As soon as you cut anyone’s hours, the rest of the team will know. That could be a big morale killer and could lead to employees leaving for more stable opportunities elsewhere.
That’s bad news when businesses are already struggling to keep their best people in such a competitive job market. According to the Bureau of Labor Statistics, as recently as March 2022, the number of job openings across the country was the highest it has been since 2000.
Don’t let your employees find out about these steps through gossip and whispers. Communicate with them proactively and transparently, so everybody understands what’s happening and why.
Despite these potential drawbacks and even with the best intentions in mind, reducing hours is sometimes the only way to move forward. In those cases, using the above tips and templates will help you communicate this to your employees in a way that steers around some of these potential problems.
How to Legally Reduce Work Hours for Different Types of Employees
While there are plenty of rules handed down by the Department of Labor when it comes to permanently letting staff go, there are few labor laws specifically around reducing hours of work.
However, working fewer hours can have an impact on whether employees are meeting wage and hour laws around minimum wage and also their eligibility for benefits like health insurance, PTO, or sick leave.
Because of this, there are still certain things you’ll have to watch out for when reducing employee work hours. The type of employee that you have determines many of the legal loopholes that you may find yourself jumping through, all of which are decided by the Fair Labor Standards Act or FLSA. So, let’s go over them:
Exempt workers are typically salaried employees who receive a minimum of $455 per week. They’re expected to work any hours necessary to do their job. Under the FLSA, they’re exempt from any overtime provisions so you’re free to adjust their hours as you choose.
But, with a limited number of exceptions: Exempt employees must still be paid their full, predetermined salary each week, regardless of the actual number of hours they’ve worked.
The FLSA prohibits employers from reducing exempt employee salaries on a short-term basis. Any long-term changes must be communicated and agreed upon in a revised employment contract. If an employee drops below $455 per week in salary, they could lose their exempt classification and, as non-exempt employees, would be eligible for overtime pay.
Non-exempt workers are usually hourly, rather than salaried, employees. Whether they’re full time or part time, though, is up to you as the employer.
The FLSA requires that you pay a fixed minimum wage for the hours that non-exempt individuals have worked. In some states, minimum wage is higher than the federal minimum. It also helps to know the employment law of your specific state, since state law would overrule federal law in this case.
The biggest difference for non-exempt employees is overtime. According to the Department of Labor, any work over 40 hours in a workweek must be considered overtime and paid at a rate of one and a half times their regular per-hour pay.
This is where you can make the biggest pay savings. Employers are allowed to reduce non-exempt employees' hours to 40 hours or less per week, as long as they are paid at least the minimum wage per hour they are at work.
For example, if an employee is regularly working 47 hours per week, that costs you a lot of overtime pay. Reducing their hours to 40 hours per week gives you a big cost savings, as you aren’t paying that seven hours of time-and-a-half pay. You’re paying 40 hours at their normal wage.
You could, also, reduce their hours below 40. There’s no law against switching a full time employee to part time, or even placing them on furlough for a fixed amount of time. Just keep in mind how a shift like that affects the number of hours they work and their exemption status.
Other Department of Labor Laws to Be Aware Of
Regardless of whether your employee is exempt or not, the Affordable Care Act (ACA) also requires that, if your business employs more than 50 people, you offer health benefits to anyone working more than 30 hours per week.
There’s also a clause in the ACA that prevents employers from discriminating against workers who receive these benefits. This means that, if you cut hours to remove their eligibility for healthcare, the Department of Labor could see this as retaliation and send a hefty penalty your way.
You should also be aware that cutting employee hours could also impact their eligibility for a job-protected leave of absence under the Family and Medical Leave Act (FMLA). In order to qualify for FMLA, employees need to have worked at least 1,250 hours for their employer within the 12 months prior to their leave.
Finally, if you have any team members with a union contract, make sure to follow their regulations about hour cuts and advance notice. That’s in addition to any federal or state law.
Making Cuts to Protect Your Business
Here’s the truth: Having difficult conversations with your team isn’t something you’ll ever look forward to, but it’s something every business owner has to prepare for. Hopefully, this won’t be a situation that you find yourself in frequently. But if you need to reduce employee hours, work closely with human resources to be certain you’re operating within the law and addressing the risks that come with this big decision.
Once you’re ready to share the news? Use these tips and templates to make the announcement in a way that’s clear, calm, confident, and compassionate.