Exempt or Non-Exempt – That Is The Question

So You Thought You Knew How to Classify a Job as Exempt or Non-Exempt?

Proposed changes to the FLSA’s Executive, Administrative, and Professional (EAP) exemptions may turn your jobs’ FLSA classifications on their respective heads!

Historically, the duties test has been the ‘king of the hill’ in employers’ determination of whether a particular job was exempt or non-exempt. Each job was carefully analyzed to determine whether the tasks and responsibilities of the job rose to the level required by the duties test of the FLSA, thus allowing it to be classified as exempt. The accompanying salary level test (at its current $23,660) was, in most cases, largely a “check-box” function. If the job met the duties test and the salary level test, all employees in that job classification were classified as exempt. It was the job itself that carried the exempt classification, not individual employees within a job.

The FLSA changes coming at us like a freight train have the potential to fundamentally change how employers determine exempt status. The salary level has more than doubled, to a proposed amount of $50,440 for 2016. Annual increases to the salary level will be tied to either 40% of the salaries of the remaining exempt labor pool nationwide or to the Consumer Price Index. (The former will cause the salary level to rise like a rocket in subsequent years.) Employers are likely to find, for jobs currently classified as exempt, that they have employees both above and below the $50,440 in the same job.

An initial reaction assumes that employers have two options: raise all those salaries that are below $50,440 in order to maintain the exempt status for all employees in a specific job, or reclassify the job (and all the employees in that job) to non-exempt. Both options have potentially significant negative impact. There is an obvious budgetary impact to the first option, and administrative and employee relations issues with the second option, with non-exempt employees required to log all work time in order for the employer to be able to pay overtime for all hours worked over 40 in a workweek.

But have you considered a third option? Because the DOL has been quite clear “that the salary level is the ‘best single test’ of exempt status,” it is entirely likely that employers may end up assigning different FLSA statuses to employees in the same job. For example, you may have a job that you are entirely comfortable meets the duties test as currently written (there were no proposed changes to the duties test). The position has historically been classified as exempt and the responsibilities and duties of the position continue to meet the duties test. But incumbent salaries within that job range from $35,000 to $60,000, due to differences in education, experience, skills, years of service, and/or performance. Rather than giving significant increases to the individuals making less than $50,440, you may decide to reclassify those employees as non-exempt and keep the employees earning > $50,440 as exempt. Sounds like an easy fix, right? But this option too is fraught with potential peril.

An administrative nightmare comes immediately to mind. Think about your HRIS system. The exempt status is tied to the position, right? Not the individual. But the employee relations aspect is likely to be your biggest headache. Imagine those employees working together, each performing every aspect of the job, but only some having to log all of their work time, and only some receiving overtime pay for hours worked over 40. Some will continue to enjoy the inherent flexibility of the exempt status, such as running a personal errand during working hours or checking email during off hours, and others will be locked into clocking in and out. You will essentially need to treat them differently while they are performing the same job. This option also shines a bright light on the salary issue, identifying who makes more and who makes less money for the same job. It’s not an easy decision for employers. Set the table for class warfare, or take on eventually unsustainable labor costs….there’s no good answer.

Blog post submitted by Margo Bronk, President-Elect of the Stevens Point Area Human Resources Association (SPAHRA).

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