This Wisdom of the Crowd (ACC member discussion) addresses the process to convert non-exempt employees to exempt employees, as well as best practices for mitigating potential liability, under the US FLSA. This resource was compiled from questions and responses posted on the forum of the Employment & Labor Law ACC Network.*
*(Permission was received from the ACC members quoted below prior to publishing their forum comments in this Wisdom of the Crowd resource.)
Question:
Does anyone have experience with converting non-exempt employees (full time hourly employees) to exempt employees (regular salary employees). For instance, an employee was hired as a secretary, but her duties shifted more towards (independent) administrative managing over the years. Is it possible to move the employee from non-exempt to exempt without a formal promotion, given that the real job duties are more defining than titles under FLSA.
The non-exempt employees currently enjoy the full health benefit and retirement plan the company provides. And the salary level and salary basis requirements are both satisfied. The main reason for the move is to simplify the payroll process.
Wisdom of the Crowd:
Response #1:
The test for exempt/non-exempt is factual--the outcome is irrespective of how you label the employee and looks only to the circumstances actually affecting the employee. Accordingly, you can classify an employee as exempt at any time they meet the test for exemption and as long as you can satisfy your burden of proof, then the classification is lawful. Importantly, if at any point in the future, the employee no longer satisfies a test for exemption because duties change further or revert, then you must reclassify them as non-exempt.1
Response #2:
Only thing to add to Ryan's point is that your last statement that the main reason for the move is to simplify the payroll process might be worth chewing on a bit. That shouldn't have an effect on the ultimate analysis and the payroll processors shouldn't be driving this.If this is going to be a "close call", you may want to consider what kind of hours the employee is working. If the employee is a hard and fast nine to fiver who never works overtime, the risk in making a mistake may not be great. If the employee stays late and works weekends, the risk of making the wrong decision might make you err towards more caution -- i.e. retention of the non-exempt status.2
Response #3:
If a non-exempt employee is currently receiving any significant amount of overtime compensation, then the transition will be a net "loss" of pay unless you accompany it with an increase in base salary. (If the employee is not earning any significant amount of overtime pay, then why are you making the change?) It is generally best practice to accompany the change with a change in title, give the employee a new job description that clearly sets out the duties that you would later point to as being exempt duties, and adjust the base salary to reflect that extra hours may now be expected without additional compensation. This will also help you avoid a problem if there are other employees in the same title that are (or should be) overtime eligible -- try to use job titles and job descriptions to distinguish one from the other. As noted, the real test is duties, not titles or labels, so make sure that the employee really is performing exempt functions to a substantial and important degree (preferably more than 50% of work time unless making more than $100K in salary) in order to avoid a claim later for unpaid overtime.3