Exempt employees are not entitled to overtime pay, according to the Fair Labor Standards Act. Non-exempt employees, on the other hand, are not exempt from overtime pay regulations and must therefore be compensated for working more than 40 hours in each work week. Effecting the change from exempt employee status to non-exempt employee status can have serious implications for your business. Among the implications are increased labor costs for overtime wages and the possibility of numerous complaints from employees whose job duties and levels of authority are significantly impacted as a result of the shift.
Read all of the provisions contained in the Fair Labor Standards Act concerning employee classification. Contact the U.S. Department of Labor for guidance on understanding regulations that are unclear or laws for which you need clarification. Be sure you have a complete understanding of exempt employee status versus non-exempt employee status. The terms can be confusing, and sometimes concepts pertaining to salaried employees are misconstrued as applying to all exempt employees. It's important that you have a solid grasp on the intent of the FLSA exemptions and overtime pay laws.
Discuss with your human resources staff or executive leadership the reasons for wanting to change exempt employees to non-exempt employees. Explore all the possible ramifications your organization will encounter as a result of making this type of shift for its employees. Ideally, the discussion should include your company's lawyer or in-house counsel, as well as a complete review of the Fair Labor Standards Act and materials related to employee classification, compensation and any prior actions related to employment decisions that affect both the overall workforce as well as individual employees.
Generate an employee census using your human resources information system resources. Sort the data according to employee classification -- non-exempt employees and exempt employees. Extract the exempt employee data and further sort it according to position or exempt category, such as administrative, executive, professional, creative and professional employees. Ensure each category of employees covered under the exemption is actually exempt. For example, administrative employees must earn at least $455 per week and perform non-manual work that requires attention to company management. In addition, administrative employees must routinely exercise independent judgment in the performance of their job duties.
Compose all-staff communications to inform your staff there will be changes to classification methods. Effecting this type of change is complex; you must simplify the message you convey to employees to avoid confusion. Develop another form of employee communication to review with individual employees. Your exempt employees will now be entitled to overtime pay, which some employees may believe is a benefit. On the other hand, reclassifying employees so they are non-exempt means relieving them of the responsibilities for making decisions and exercising independent judgment. This will be difficult for some employees, especially those in management positions.
Calculate the number of hours exempt employees in each position or classification generally work during each week. This may take some time to determine the average number of hours worked because exempt employees are usually not accustomed to monitoring their hours worked. Use observation and employee input to determine how many hours your exempt employees work in any given week. Give your compensation and benefits specialist a heads-up on the impending change. The compensation levels will likely change and you may be liable for back wages if you effectively change the exempt employees to non-exempt employees.
Revise the job descriptions for each classification of workers and each position within the company. Remove all responsibilities from their jobs that require independent judgment and influence they may have on workplace policy, management direction and other duties they formerly had as an exempt employee. Document your steps in this process to ensure you examined each job role for proper classification. Reissue new job descriptions to all employees affected by the change; issue job descriptions to all members of the remaining management team.
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