Exempt or Non-Exempt?

To be exempt or not to be exempt; this seems to be a tough question for many HR professionals these days. The Fair Labor Standards Act was established back in 1938 to grant overtime and better work wages when industrial jobs were pervasive in the market. It could not have come at a better time as jobs back in those times had very low wages (relative to the cost of living I suppose one can argue) and very poor working conditions. 

One cannot be categorized as Exempt from the protections of the Fair Labor Standards Act without meeting the required duties test as well as the salary guidelines. There are many opportunities for someone to fall outside of the protection of the FLSA; those individuals would fall under the administrative, professional, executive, outside salespeople, highly compensated employees as well as Computer employees. Those who do fall under the protection of the FLSA are required to get time and one half of their hourly wage for each hour of work over 40 hours a week.

I’ve seen both sides of the fence, and know clocking in and out is a hassle. It is definitely nice receiving time and one half for each hour over 40; however, most companies don’t let employees work overtime unless they get prior approval. I don’t know of many companies out there which let employees work large amounts of overtime without approval. I have worked for a company which was short handed all the time, so I was able to put in more than 40 hours each week. If I can advise any employer about overtime, it is they must pay the overtime no matter what. However, they can most certainly discipline the employee for working overtime without approval. 

In a time when budgets are tight and employers are cutting overhead each day, the United States Government’s response to President Obama’s Executive Order to update the salary basis test portion of the FLSA could not have come at a worse time. I can most certainly understand because increasing managers salary from the miniscule $455 per week minimum to the new $970 per week can put a lot of employers in a pickle. On the flip side, the $455 per week is an extremely low and outdated number. I don’t know of many individuals who can live off of a wage this low. I’m sure individuals manage, but I would absolutely agree and support an increase in wages for the exempt individuals. 

If those employers whose employees are currently exempt from FLSA protection cannot be moved up to the new salary of $50,440 per year, it is also an option to pay those employees time and a half for hours worked over 40. It would seem contradictory for an employer to pay overtime to someone who is exempt in nature for their duties and this could easily bring any employers classification practices into question for the rest of their positions. 

The question can be asked if supporting this new increase would help, or if it would hurt. I think it could be extremely beneficial for large employers who can afford the changes in their budgets. For smaller companies, they will most likely struggle unless they’re able to make adjustments in their spending (or increase revenues). In a time when employers and small businesses have had to find creative ways to stay afloat, many are having to hurdle the ever-changing regulations passed by the United States Government. 

Hearing both sides of the story can certainly change someones perspective on the matter. I, for one can see the benefit for the employee and the employer, as well as the bad. Employers may decide to downsize (or lay off) workers to substantiate the increase in wages. The employees can suffer through this by loss of a job while the managers are able to get their increase in pay. On the flip side, employers can evolve and require their managers to not work all kinds of hours in the day, not answer emails at night or take phone calls after hours. There are most likely other ways an employer can manage this update in the FLSA, but this blog would be forever in length if we went into the millions of different ways of managing the change. 

In this unpredictable market where consumers are price sensitive, an increase in prices may motivate consumers to go and purchase their goods somewhere else. With the lack of details on when we can expect to see the actual regulation come out, many employers are going to need to sit down with their compensation department and strategically plan their move before regulations come out officially. When weighing the pros and cons of this change in regulation to the FLSA, I would support the much needed update to the minimum salary. I can only hope this does not hurt the economy by leading to layoffs or forcing companies to close their doors. Economic growth is stimulated through spending and business expansion, both don’t happen if employees are being globally laid off from work or if employers are closing their doors. 

What do you think should happen?

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