Exempt vs non-exempt workers: simplify employee classification

In the United States, most jobs are governed by the Fair Labor Standards Act (FLSA), which classifies workers into two broad categories: exempt and non-exempt. Under the FLSA, non-exempt employees are entitled to overtime pay, while exempt employees receive no overtime pay, regardless of how many hours they work.

This sounds straightforward, but the FLSA has a number of exemptions when it comes to overtime pay and minimum wage requirements. These include white-collar exemptions for administrative, executive, and professional employees, computer professionals, and outside sales employees, as well as the highly-compensated workers exemption.

To understand if an employee is exempt or non-exempt, you’ll need to review the following three tests:

  • Salary level test: Under the new overtime rules, employees paid less than $913 per week are considered non-exempt.
  • Salary basis test: This determines if an employee is paid a guaranteed minimum, regardless of the number of hours they work. This amount need not be the entire compensation received, but the employee must have some amount of expected pay for any given workweek.
  • Duties test: This determines if the nature of role is categorized as “administrative,” “executive,” or “professional.” The FLSA exemptions are limited to employees who are deemed to perform relatively high-level work, rather than based on job titles or position descriptions.

Classifying employees as exempt or non-exempt has been a hot topic lately, and a particularly fruitful area for lawsuits – contributing to 17 percent of wage and hour litigations since 2007. With the new overtime rules and the recently released sick leave mandate (applicable in a number of states and cities), businesses will need to consider multiple factors when it comes to reassessing and possibly reclassifying their workforce.

There are a number of other approaches businesses must consider as part of a holistic process, people, and technology approach to effective employee classification. Below are four critical tips for successfully managing both exempt and non-exempt employees.

1. Ask employees to schedule and track hours

The FLSA does not prohibit tracking of exempt employees. In fact, the Department of Labor states that employers can require exempt employees to work a specific shift and/or track their hours without affecting their exempt status. For example, Illinois (a jurisdiction with work time requirements) requires employers to keep a record of exempt employees’ hours worked. It is recommended that the exempt employees are tracked separately from the non-exempt employees.

2. Ensure salaries don’t fluctuate based on number of hours worked

No matter how many hours an exempt employee works, those hours tracked should in no way be used to manage the pay that an exempt employee receives. If their hours affect the salary and the salary fluctuates based on this, then the employee will no longer be considered exempt.

3. Update corporate policy and job requirements accordingly

If a business needs its exempt employees to work a shift and track their hours, the company’s corporate policy needs to emphasize that employees are not being treated as non-exempt. The best approach is to show that these additional requirements are part of the employee’s job responsibilities – that they need to work specific hours to perform their managerial, professional, executive duties effectively. For example, shift supervisors need to work in the same shift as the employees they are expected to oversee (and thus should track their hours), but can still be considered non-exempt.

4. Train employees on policy changes

Businesses should involve all parties affected by the new rules, ensuring they understand both the changes themselves, as well as their implications to employee management, morale, and compensation. As part of the communication process, training should also be conducted so that employees – particularly those in managerial roles – can play an active role in unveiling these changes to the business. Changes to wage and hour regulations can have unintended consequences (such as these additional business costs), so engaging the workforce on any updates is crucial.

While reclassifying, increasing the salary threshold, or limiting overtime hours may seem like clear options to tackle the overtime rule changes, there are numerous considerations from a business, technology and legal standpoint.

Want to learn more about new overtime legislation?

Register here for our Sept. 20 overtime webinar, hosted by attorney R. Brian Dixon (Littler Mendelson).

Regina Mullen
ABOUT THE AUTHOR
Regina Mullen
Regina is the Workforce Management Expert & Content Marketing Associate for Replicon. Replicon provides award-winning products that make it easy to manage your workforce. With complete solution sets for client billing, project costing, and time and attendance management, Replicon enables the capture, administration, and optimization of your most underutilized and important asset: time.
Get started today.
Set up a free trial based on your business needs. Start Free Trial

Make Time and Attendance Part Of Your Digital Transformation

TLNT | October 10, 2019 By Raj Narayanaswamy, Co-founder and co-CEO at Replicon Many businesses embarking on a payroll and HR transformation journey can easily get caught up in the…Read More

Global Compliance Desk – Australia

Recent Federal Court Decision: Accrual of Personal/Carer’s Leave Most employers in Australia follow the practice of calculating personal/carer's leave entitlements in hours. On 21 August 2019, the Federal Court of…Read More

Project management, all grown up

accountingToday | September 17, 2019 By Scott Bales Vice president, Enterprise Solution Engineering and Delivery, Replicon One might assume they already know everything a project manager in a professional services…Read More

5 ways to improve service delivery in your organization

In a highly competitive market, service-based businesses need to capitalize on any opportunity to set themselves apart from their (often very similar) competitors. While implementation, system details, and service management…Read More

Demystifying the millennial workforce: 5 tips from Trunk Club’s Andrew Anderson Devine

Time magazine labels the millennial generation the “most threatening and exciting generation,” infamous for “narcissism [and] its effect: entitlement.” In the workplace, the perception of the millennial workforce is no…Read More

Common pitfalls in professional services organizations & how to avoid them (1/3)

The professional services organization (PSO) landscape is changing -- employees are harder to recruit and retain, a globalized marketplace increases competition for clients, clients want more for less, and management…Read More
  • Cloud
  • In The News
  • Corporate
  • Professional Services Management
  • Project and Program Management
  • Shared Services Management
  • Time and Attendance Management
  • Workforce Management
  • Customer Feature
  • Feature Update
  • Time Intelligence
  • Industry News
  • Webinar Recap
  • Global Compliance Updates
  • Chat with us
    How can we help you?