Human Resource Blog

exempt and non exempt

Our organization is attempting to change the status of exempt employees to non-exempt. According to the U.S. Department of Labor definition of exempt and non-exempt is it up to the organization to place an employee in either exempt or non-exempt status and use the DOL tests as a guideline or are the DOL tests a regulation? I guess what I am asking is it up to the discretion of the organization to place the employee in an exempt or non- exempt status whenever the organization decides? What would be the benefit of changing the exempt status to non-exempt?

Any employee can be treated as a non-exempt employee, even the CEO or President of the company. There is no federal or state law that an employer must treat anyone as an exempt salaried worker. So what your company is doing — permanently changing exempt employees to non-exempt status– is completely lawful.

The primary statute involved here is the federal FLSA or Fair Labor Standards Act (although some states also have regulations regarding exempt/non-exempt status.) Under the FLSA, every employee must be paid for each hour worked and is entitled to overtime after working 40 hours in the payroll week — with a few exceptions. Those exceptions are employees who receive the same salary over $455 each week, whose primary duties meet certain requirements. Those employees are exempt from certain parts of the FLSA — which is why they are called salaried exempt employees.

The FLSA regulations (like all federal regulations) have the force of law, but they do not require that you must treat certain employees as exempt — only that under some circumstances you may treat certain employees as exempt.

The main advantage to employing exempt workers is that they are not entitled to overtime after working more than 40 hours in the payroll week. If a manager, CEO, professional or outside sales person routinely works more than 40 hours per week, then it is a huge advantage for them to be exempt. An exempt employee is entitled to exactly the same weekly salary, whether she works 40 hours or 140 hours in the payroll week.

The main disadvantage of employing exempt workers is that they must usually be paid the same salary each week, regardless of how few hours they work. Suppose Susie works her usual 5 days this week but puts in only 25 hours. If she is an exempt employee, she must be paid her full weekly salary — the same salary she would receive if she worked 40 or 140 hours this week. If Susie is non-exempt, she can be paid only for the hours that she worked.

If this change in status was temporary, it would be unlawful. For example, you could not classify Susie as exempt one payroll period, non-exempt the next payroll period (when she worked 25 hours per week) and then switch her back to exempt the next payroll period (when she worked 50 hours per week.) The U.S. Department of Labor views this as an illegal attempt by the employer to avoid overtime.

However, as long as the switch from exempt to non-exempt status is permanent, and affects everyone with the same job, it is legal.