The Cultural Problems of Reclassifying Exempt Employees to Non-Exempt under FLSA

In June 2015, the Department of Labor (DOL) proposed a key change to the provisions for determining exemption from overtime by raising the minimum standard level for salaried workers from $455 per week ($23,660 per year) to $970 per week ($50,440 annually). While the rule is not yet final and is not expected to be in place until 2016, organizations all over the US are preparing for the impact, both financially and culturally. Many times the latter is overlooked.

In fact, telling an employee they are now eligible for overtime, logically, seems like good news since they could earn pay at one-and-a-half times their regular rate if they work beyond 40 hours in a workweek. Often, changing an employee’s status from exempt to nonexempt raises employee concerns about how they are viewed in the organization and what impact the change may have on his/her career advancement. It’s as much a culture change as it is a matter of compliance.

How to Effectively Manage Problems That Arise with FLSA Reclassification

Helios has partnered with many organizations in assessing proper FLSA classification, and some common cultural challenges have emerged from our experience that we then need to work through to effectively manage.

Here are some concerns that often come up during a reclassification process:

“I never tracked my time before and now I have to account for every minute. I’m a professional. Don’t you trust me?”

Employees often feel micromanaged by tracking the minutes on their timesheet. We recommend conveying that a timesheet allows the organization to pay employees accurately, and that’s important from not only a legal perspective but also for their livelihood. In some organizations, all employees complete a timesheet, although exempt employees do not track their time the same way. By having everyone complete a timesheet, it may help to level-set time tracking as a broader expectation.

“Now that I’m nonexempt, I won’t have the same opportunity for advancement or professional development.”

This concern typically comes up when a manager fears that allowing professional development during work time could put the employee into an overtime status for that week. And for any organization that tries to manage overtime costs, this is a legitimate dilemma. This is where an organization’s culture comes into play: how important is it for employees to grow and develop in the organization? And if it’s important, consider viewing the time spent as an investment and not just a cost. If your organization values professional development for all employees, this is an excellent opportunity to focus on an aspect of an employee’s work life that is not changing.

“I only spend 10 minutes every night checking email. I’m not going to ‘charge’ the organization for that time.”

Under the FLSA, no employee can work out of the kindness of their heart. Employees must know all time spent working should be recorded. A significant point here is that before the change in status, they did not work for “free” on evenings and weekends – their salary included that time. Now, with being in a nonexempt position, the way in which their time is accounted for has changed, and their hourly wage only includes the actual time worked. If possible, designate time for employees during the day to catch up on emails and create the expectation that unless something is truly an emergency, work can wait until the next day.

Top Tips for Managers During with the Reclassification of Exempt Vs. Non-Exempt Employee Status

The concerns from employees may be different in your organization. Whatever concerns your workforce may have, when you roll-out this change keep in mind these tips:

• Engage your managers early. Ensure they understand what FLSA classifications are and have the tools and training to effectively manage non-exempt employees. Unlike many changes, this is not one that can be debated or negotiated and managers need to be onboard and prepared to deliver the message and manage the change. And sometimes even your leaders need to hear a message several times before they can internalize it and convey it effectively to their teams.
• Communicate frequently. Communicate as often as you can with impacted employees and managers and make use of all channels. Using frequently asked questions (FAQs) documents, company email, and all hands meetings are good ways to ensure everyone gets the same message at the same time. Use one-to-one meetings to address individual employee concerns.
• Provide a point of contact. Let employees know who they can go to with questions other than their manager. Some managers won’t communicate as effectively as others, and you don’t want to leave employee understanding up to an individual manager’s ability to communicate.
• Show appreciation. Emphasize that this change does not dilute the value that a person contributes to the team. Recognition of a job well done is crucial in times when change is hardest, so be sure employees know they are appreciated.

Change is always challenging and transitioning from exempt to nonexempt status is no exception. It’s important to offset difficult messages by focusing on what’s positive about working in your organization. At the end of the day, all employees need to know what’s expected of them and how they are valued. If your organization can do that effectively, you will reduce the challenges presented by reclassifying exempt employees to nonexempt.