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.