Moving Exempt Employees to Non-Exempt Status
May 28, 2015
We discuss the misclassification of non-exempt employees regularly here on the blog and in our presentations at conferences and webinars, but a reader of the blog wrote me before the holiday weekend to ask about the reverse situation. The reader’s company has previously determined (correctly, we’ll assume) that some of its employees meet the “computer professionals” exemption from the Fair Labor Standards Act’s overtime requirements, while others are supervisors who meet the executive exemption under the FLSA’s regulations. For various business reasons, senior management has decided to start paying these employees as though they were actually non-exempt employees: tracking their hours, paying them hourly rather than a salary, and paying overtime when applicable. The reader wrote to ask whether this was legal, given that all of the employees in question apparently meet the tests under the FLSA to be treated as exempt. This question is timely for an important reason other than this company’s business decision: the release of the proposed FLSA regulations that we expect any day, once the OMB’s Office of Information and Regulatory Affairs (OIRA) completes its review. Under the new regulations, many employers will have to face a mandatory move of employees from exempt to non-exempt status.
“Exemptions” are Not Requirements Under the FLSA
First, to answer the reader’s question, it is legal for an employer to change course and to treat employees who qualify for exemptions under the FLSA as non-exempt instead. To use a simpler example, you may qualify for a deduction from your personal taxes for unreimbursed business expenses or for high medical expenses. However, nothing in tax law requires you to claim these deductions just because you qualify. The same is true under the FLSA. Nothing in the law or its regulations require employers to treat employees as exempt, even if (as in our reader’s question) the employees apparently meet all parts of the requisite tests. Employers can certainly elect to classify exempt employees as non-exempt, or, relatedly, decide that it will treat “close cases” as non-exempt.
Keep in mind that other considerations might apply, too, such as collective bargaining agreements, employee offer letters, or employment agreements. To the extent that any of those require the payment of a fixed salary, treating an otherwise exempt employee as non-exempt could complicate any decision like this. The FLSA should be a starting point for your decision, but not the only one.
The reader’s question raised one other issue for me that most employers will need to consider in the near future: how to transition employees from exempt to non-exempt status. As I said above, this transition might be forced on you if the definitional changes in the new FLSA regulations mean that a previously exempt employee no longer qualifies based on their weekly salary, duties, or both. Now, not later, is the time to audit your employees’ exempt status. A move from exempt to non-exempt will undoubtedly heighten awareness of FLSA classifications and the possibility that a previously “exempt” employee was misclassified. Expect more advertising on Google, social media, radio, and TV by plaintiffs’ lawyers capitalizing on the coverage of the release of the proposed regulations. This issue is not going away.
Want evidence of that? No less than The Wall Street Journal ran an article last week entitled “Can You Sue the Boss for Making You Answer Late-Night Email?” If you are an employer whose non-exempt (or about-to-be-non-exempt) employees use smartphones for work (theirs or yours), the answer is yes, if the time spent answering that e-mail amounts to more than de minimus (insubstantial or insignificant) amounts of time each week. Should you pay employees? Block employee access to work e-mail after hours? Implement an on-call policy of some type? These are the types of questions you should be asking as you start to audit your FLSA classifications. Whatever your analysis and ultimate decisions, always ensure that your non-exempt employees understand that they are not to perform any work activities that are not accounted for in your timekeeping system, and that supervisors monitor and take appropriate action with respect to employees who fail to comply with that policy.