To Exempt or Not to Exempt? That is the Question. – Part 1

When I began working, I thought a good marker of success was becoming a salary employee. In my mind, being salaried meant I was important, would have authority, and maybe even sophistication. I could then tell all my family and friends I was salaried, and they would be impressed. I was led to this opinion due to every manager I came across being salaried. I also thought traveling for work was “luxurious” and “fun”. I’ve changed my stance on both over time but I will mostly tackle the former on this entry.

My earlier opinion is not uncommon. I distinctly remember joining an organization as the Head of Human Resources where I had a team. Prior to my arrival, one of the team members had been properly reclassified to non-exempt after a position audit. The position was highly transactional and administrative with a title of Generalist.

In this position, the person was not expected to make many independent decisions, and mostly processed benefits and training records. The team member was still very upset about the change, even though it had been almost a year since the change. To them, this felt like a demotion since being non-exempt (what we usually call hourly) is not seen as “important” as exempt (what we usually call salary).

Their actual job never changed and their hourly rate of pay was set to the per hour equivalent of 40 hours of “salary”. Their main complaint was that they now had to take PTO if they were not at work or they had to make up the time. Essentially, they were telling me they wanted to be able to be out of the office with full pay.

Using this scenario, I’ll cover some thoughts regarding non-exempt employees under the Fair Labor Standards Act (FLSA). I am strictly addressing thoughts on federal guidelines; your state, local municipality, and/or collective bargaining agreement requirements may vary.

Salary and hourly are not the same thing as exempt and non-exempt. Salary/hourly is about how a person is compensated and exempt/non-exempt is about whether or not they are legally exempt from overtime pay.

The FLSA covers: (recapped from link above)

• Minimum wage for non-exempt and exempt employees

• Overtime rules

• Definition of hours worked (including travel time and training as applicable)

• Recordkeeping

• Child Labor

• Distinction between employee and independent contractor.

In the above scenario, a position audit determined that the position was non-exempt which means the position is not exempt from overtime pay. The way this is determined is by what’s usually called a “duties test”. Per the FLSA “Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.” It is therefore not enough to give a specific title to someone and make them salary to meet the requirement.

The position had previously been classified in error as exempt under the Administrative Exemption. Upon auditing the tasks, it was discovered that the position’s primary duties did not include the exercise of discretion and independent judgment with matters of significance. This is not to say that the position was not important or essential; it just didn’t meet the standard set for this exemption. General office duties such as filing and completing reports as a primary function do not likely meet the standard, regardless of title.

The main concern for the team member was that now, when they had to take time from their day for a doctor’s appointment or an extended lunch for an errand, they would have to take PTO instead of being paid their full salary or they had to work over to make up the time (or go unpaid for that time). In our case this was true because we did not have them set up as salary non-exempt where they would be paid a salary for up to 40 hours with no deductions for the instances I just described, but would be paid overtime if they worked over 40 hours.

We had them set up as strictly hourly, being paid for only time worked, unless using their PTO or other wage replacement. Employers have the option of paying a non-exempt position based on a salary as long as they also keep track of time worked and pay any hours worked over 40 at the appropriate overtime rate.

Some of the FLSA pay requirements include or may include: actual time worked, waiting time, on-call time, certain short rest periods, training, and travel time. Fact Sheet #22: Hours Worked Under the Fair Labor Standards Act (FLSA) is a great resource on pay requirements.

FLSA overtime requirements include: (recapped from the main FLSA page)

• Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek (any fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods) at a rate not less than one and one-half times the regular rate of pay.

• There is no limit on the number of hours employees 16 years or older may work in any workweek.

• The FLSA does not require overtime pay for work on weekends, holidays, or regular days of rest, unless overtime is worked on such days.

When determining pay for a non-exempt position, it’s important to keep the FLSA requirements in mind and making sure employees are properly classified. In Part 2, I’ll explore more about classification and improper deductions.

You may be wondering what happened to the team member. Once they realized the benefits of being a non-exempt employee, it became less about the perceived change of status to relief in knowing they would be compensated for any time worked over 40 hours in a workweek on the rare occasions when that was required. They became more careful in their planning for time off and generally more productive in order to end the day on time.

It was a win for all!

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