Quick Q&A: How Do I Correct an Employee’s FLSA Exemption Status—Without Getting Into the Question of Back Pay?

Steve: It’s a great question. We deal with this all the time. If you’ve got a group of employees, it is always better to change them all at once, as opposed to just changing one person, because nobody wants to be looking over their shoulder and say, ‘Wait a second, how are you being paid?’ Make sure it’s consistent for individuals in that position. If there’s a way to roll out the change at a time when you’re also doing other changes—let’s say you’re rolling out an arbitration program or you’ve got open enrollment—so that it seems less likely to draw attention, then you can do it that way.

Many employers do not figure out what back pay is and go back and pay it. That is the most conservative position to take, but few employers do it; they just don’t feel that it’s necessary and they don’t want to draw attention to it. I think from an employee relations standpoint, you can try to sell them on the idea that this is better for employees, however you can do it. You’re going to need to convince the employee that what’s happening is ultimately going to be better for them than the old way, and that may require tweaking the non-exempt pay plan so that the employee knows that they’re going to be getting a little bit more than they were getting before,

An employer in this situation may want to communicate something along the lines of this: ‘Hey, we’re going to change your pay plan. You’re going to be non-exempt, you can get overtime, you’re going to be rewarded for all your work, but we’re trying to figure this out so you’re going to be making exactly what you made before.’ That may seem like a fair thing, but for the employee who is now at the mercy of this new pay plan, they’re nervous. If you can tell them, ‘look, if you work exactly the same number of hours you worked last quarter, you’re actually going to do better than you did,” that is one way to assuage their fears.

Ophelia: I agree with what Steve said. A lot of times, depending on how they’d like to approach it, we recommend that an employer talk to their attorney because there is a decent amount of exposure when making that change. Back when [lawmakers first] had the conversation about changing the salary requirements for the FLSA, it was a lot easier because it’s like what Steve said: doing it in conjunction with something else or something big that’s happening externally helps a lot.

[Back before a court struck down the proposed FLSA change ], we had a guide about the topic, helping employers figure out how they wanted to make the change: Are you going to pay somebody their hourly rate? Are you going to factor in overtime? How are you going to decide how much they’re going to get paid?

There’s a handful of ways to do that, but I do think it’s always a good practice to make sure that someone’s leaving the situation better than they were, because then they’re less likely to dig back and say, ‘Wait, you owe me this; you owe me that.’ And so in regards to the decision of whether or not to go back and do back pay and calculate all of that out, we recommend that the employer talk to their attorney to assess how much risk is involved, and go from there.

I would never just say, ‘No, you don’t have to pay it.’ I can’t in good conscience say that. But I usually say, ‘Talk to your attorney, and come up with a plan to really assess the risk. How much is it? Do you think that employee’s likely to [get upset?’ And then make your business decision on that.

This week, the “A” in our Q&A comes to us courtesy of Steve Roppolo and  Ophelia Yan.

For more information about the FLSA—and more compliance answers—check out our blog and Resource Library.