FLSA: To exempt or not to exempt
August 8, 2008 by Bill MeltzerPosted in: Fair Labor Standards Act, In this week's e-newsletter, Latest News & Views
Apart from the legal necessity of complying with FLSA, the decision to reclassify an employee’s job description from non-exempt to overtime exempt or vice versa can have unexpected rewards and risks.
On the positive side, many employers have found employee morale concerns to be easier to manage than they initially feared.
In many cases, hourly or non-exempt salaried employees consider a switch to exempt salaried status to be a step up in prestige. While exempt/non-exempt status is a legal issue – not a professional one — employee perception can be a surprising ally to management.
Meanwhile, fixing payroll overtime mistakes needn’t be ultra-expensive in the long term.
Some short-term pain is unavoidable. In order to comply with FLSA and minimize lawsuit risks, your firm should voluntarily offer to pay re-classified employees back wages for any overtime that was missed. Don’t forget to base the OT rate on total compensation, not just base salary.
Going forward, however, many firms adjust salary or hourly wages, bonuses, and other compensation accordingly so that the future cost to the company is similar to past costs.
Be sure to avoid one of the most common blunders employers make in trying to correct missed overtime. Managers often have the mistaken belief that paying employees an end-of-year bonus makes up for unpaid OT.
What this practice actually does is brings up a non-exempt employee’s total compensation without satisfying a penny of the overtime thats owed. In other words, you still owe time-and-a-half for the overtime, but now the OT pay rate you owe has gone up.
Tags: exempt, FLSA, non-exempt
May 8th, 2008 at 2:33 pm
Would you please help me understand the difference between exempt and non-exempt status? Thank you.
May 28th, 2008 at 11:53 am
Yes- please someone give me a clear definition of what classifies an employee as exempt or non- exempt. Thank you.
August 14th, 2008 at 2:23 pm
Does being an exempt employee simply mean I am exempt from receiving over-time pay for any hours beyond my regular work week? Would a non-exempt employee be one who does receive over-time pay for any hours beyond his/her regular work week? So exempt and non-exempt refers to being eligible to receiving over-time pay? What determines who is an exempt or a non-exempt employee?
August 28th, 2008 at 2:09 pm
Yes, could you please clarify for me the difference between exempt and non-exempt and salaried. Does an exempt employee receive their salary regardless of whether they work 30 hours a week or 60 hours a week. Does an exempt employee receive salary regardless of whether the company is open or closed for business and does not have to take vacation days for days closed for business (example: day after Thanksgiving or other Holidays)
September 20th, 2008 at 8:18 pm
If someone is misclassified, I read somewhere that everyone under that manager’s supervision is subject to hourly and not salaried. Is this correct? If that person quits, is money still due to them because of the misclassification?
October 16th, 2008 at 2:27 pm
Exempt and Non-Exempt refer to the Fair Labor Standards Act (FLSA) which decrees that workers must be paid overtime if they work more than 40 per week and must have an hourly rate that is at least equal to minimum wage. http://www.flsa.com/coverage.html
An Exempt job is not subject to the provisions of the law; a Non-Exempt job is. To be Exempt from the law, a position must be paid on a salaried basis and fit into one of several Exemption categories.
You’ll find a lot of information about this online.
October 17th, 2008 at 10:46 am
The classification for exempt status should be based on criteria established by the Department of Labor. The job requirements to be exempt should include a few things, supervision of other employee, does the job require an advanced degree, does the person make decisions independently, etc. There are a few more that you can look up, but that gives some guidelines to follow. I usually advise if you are unsure, then you are safer classifying as non exempt. The most important thing to remember when classifying is that you are looking at the job functions itself and not the person performing them.
As far as Brenda’s question is concerned, it is most certainly true, that if an employer classifies an employee as exempt and they should be non-exempt, then if the employee worked any overtime the employer would have to go back and pay based on the total comp. This is why it is so important to keep accurate attendance records.
October 17th, 2008 at 11:14 am
Thank you everyone for your responses! This has helped me understand more clearly the definitions & conditions of exempt & non-exempt employees.
October 17th, 2008 at 2:40 pm
I have another question? Along these lines. Here’s the thought. Upper managment (say VP) hires someone that is non-exempt but they list them as exempt. Then, they find out they have misclassified them. Does everyone that falls under that one upper management person (VP) now become non-exempt? I feel I have read that somewhere.