The Fair Labor Standards Act (FLSA) is a hot topic right now. You’ve attended webinars, read countless blogs, and are hearing little else besides the new FLSA overtime regulations and exempt vs. non-exempt statuses.
Good. You need to be prepared and know what’s changing — because it’s a big deal!
The Final FLSA Overtime Rule issued by the Department of Labor back in May raises the salary threshold for overtime eligibility from $455/week to $913/week ($47,476 per year). This rule only applies to executive, administrative, and professional exemptions – but that still adds up to around 4.2 million employees in the US!
The effective date for this rule is December 1, 2016…so the clock is ticking! You have two options:
- Raise the salary of all employees paid under the new level to the minimum (as long as they pass the job duties test to stay exempt).
- Change employee status to a non-exempt and convert salary to hourly.
(Now, if you’d like to read more about the final rule and what to do to be compliant with the change, we suggest you read our previous blog here.)
Today, we want to talk about that Option #2: Change employee status to a non-exempt and convert salary to hourly.
It may sound like an easy fix. But this exemption flip might affect your employees’ morale, especially if your company uses exempt status as a status symbol.
Exempt vs. Non-Exempt Classifications
Before we go on about exempt status as a status symbol – let’s have a quick refresher on the difference between exempt and non-exempt classifications.
Here’s what it all comes down to: The difference between an exempt and non-exempt employee is how they are compensated. An exempt employee is paid to get the job done regardless of how many hours they work. They are not required to take breaks. In the majority of our states, non-exempt employees are entitled to overtime pay at a rate of 1.5 times their hourly rate, for time worked in excess of 40 hours in a workweek. They are also entitled to take meal and rest breaks.
(If you want to learn more about how to classify your employees using three main tests, check out our blog here.)
Now back to the topic at hand…
FLSA Exempt Status
With the new FLSA overtime rules, many employees will be transitioned from an exempt to a non-exempt classification, and they probably won’t be happy about it.
These employees may feel like they are being micromanaged since they’ll now have to track their time, and they might even feel like their position is less prestigious and valuable. Which is all understandable because being exempt has become somewhat of a status symbol.
The problem with this mindset is that the minimum salary threshold has doubled, so now a good portion of the middle class falls under the non-exempt category.
We should keep in mind, however, that exemptions to the FLSA’s minimum wage and overtime requirements were made as a benefit to employers, and not as a reward to recognize employees for their achievements.
Also, the reason for the new rule is to protect employees who may be putting in extra hours without proper compensation.
Benefits of Exemption:
Being exempt certainly has its conveniences for employees:
- Exempt employees usually don’t need to track their hours.
- They generally have more flexibility,
- They are paid the same regardless of the quantity or quality of their work.
Drawbacks to Exemption:
Being exempt also has a major drawback – exempt employees aren’t eligible for overtime pay when they work over 40 hours in a workweek. This means that an employee may be putting in extra hours for no reward.
Exempt Status Doesn’t Have to Change Everything
When you communicate with employees about the transition to non-exempt status, explain that the change has nothing to do with their performance or their importance to the company, but instead has everything to do with complying to the new overtime rules. The classification change is not personal, and it likely impacts a number of employees in your workplace.
You might also want to take this opportunity to praise their work and tell them you value and appreciate what they bring to the organization. Give specific compliments to let these employees know that they shouldn’t feel down about themselves—build them up and reassure them that they are valued.
Be careful not to harp of the benefits of exemption.
Your words of encouragement to your non-exempt employees may sound hollow if your business culture puts exempt employees on a higher pedestal. It’s one thing to recognize the merit of individual exempt employees, but it’s another to imply that exempt status itself signifies greater value and higher prestige.
Becoming exempt isn’t like becoming a partner in a law firm or receiving tenure at a university. When an employee receives a raise or a promotion and thereby becomes exempt, focus on the job well done or on the new duties—these accomplishments are worth celebrating.
If you allow your exempt employees flexibility with their schedules, allow the same for the non-exempt employees when possible. Time tracking doesn’t have to mean rigid schedules or micro-managing.
In fact, for those who have been reclassified because of the new rules, maintaining a perk like scheduling flexibility can help keep morale high.
If you think your company needs help transitioning employees from exempt to non-exempt classifications, contact us for more information on how we can make the process smooth and simple.