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Nov15

Converting an Exempt to Non-Exempt

I have an employee in CA and he is currently a salary employee. Some of the management want to convert him to hourly from salary. Can we do that and if so what kind of back pay will we owe?

The federal Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.

Some states, including California, have their own wage and hour laws.

Under both the FLSA and California labor code, employees are either non-exempt or exempt.

Non-exempt employees must be paid for all hours worked and are subject to overtime and minimum wage requirements. Conversely, exempt employees receive a fixed predetermined salary and are excluded from overtime pay provisions.

A salaried employee is often an exempt employee. However, it’s important to point out that salary and hourly paid are compensation terms. Though uncommon, it’s possible for a non-exempt employee to receive a salary.

Let’s assume you’re referring to an exempt employee.

Employers determine employee classifications based on FLSA regulations and California labor code. So, an employer is able to change an employee’s classification as deemed appropriate.

Whether the employee is due back pay depends on the reason for the change in classification.

Some employers opt to change an exempt employee’s classification to non-exempt as a means to address attendance or performance issues. This is absolutely not recommended since it places the employee’s exempt status as well as other similar position’s status in jeopardy. Regardless, back pay wouldn’t be due to the employee in this case.

An employee’s FLSA classification can change when his job duties no longer meet the criteria for exempt status. In this case, back pay is also not due.

If it’s determined the employee has been misclassified then to reduce the risk of a wage claim back wages should be paid to the employee. You would need to determine to the best of your ability how long the employee has been misclassified and how many hours of overtime is owed to him. It’s advisable to include the employee in these determinations and agree to the amount due. This may be difficult considering the length of time in question and especially if you have no record of the employee’s hours worked. Hence, the need for the employee’s input. Further, obtain the employee’s written approval for the amount agreed upon. This will prove beneficial if the employee later files a wage claim for additional overtime.

Though paying back wages has the least legal risk (practically none if done correctly), you can opt to not do so. Simply inform the employee of the classification change and his eligibility for overtime pay going forward. This option can be risky since the employee can question the change and his entitlement to back pay. Even if he accepts the change, he can still later file a wage claim for the back overtime.

Misclassifications can be costly for employers. But, addressing the issue now and paying an agreed upon sum to correct it is less risky and more cost effective then potentially have to pay back wages and benefits, fines, and legal fees.

This entry was posted on Sunday, November 15th, 2015 at 9:17 pm and is filed under
Compensation, Labor Laws.
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