Exempt v. Non-Exempt: The "FairPay" Overtime Initiative
By Phil Hewes
The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime pay, record-keeping, and child labor standards that affect employees in both the private and government sectors. The U.S. Department of Labor (DOL), Wage & Hour Division, oversees FLSA. In 2004, the DOL published and issued its long awaited regulations on Part 541 "Defining and Delimiting the exemption for Executive, Administrative, Outside Sales and Computer Employees: Final Rules" or in simpler terms – the "FairPay" Overtime Initiative. These regulations call for employers to categorizes employee as either "Exempt v Non-Exempt" for the purpose of determining whether overtime pay is required to be paid for work performed over forty hours per week. Overtime pay is required for all Non-exempt employees.
Wage and hour litigation has again exploded in the wake of the Supreme Court's decision in Alvarez v. IBP that expanded pay for pre-shift work. Additionally, collective and class action lawsuits on behalf of high-paid financial advisors, mortgage loan specialists and other positions traditionally perceived as "white collar" exempt employees have resulted in enormous payments to employees in 2006.
Since the issuance of these new regulations by the federal government, and with the prevailing brisk atmosphere of employment litigation, Employers are pressed into making classification of employees and requiring Non-exempt employees to be on a time clock or track hours of work. With the misclassification of workers causing costly consequences as illustrated by many of these cases, some employers are asking the question – "Should we track hours for Exempt employees, too?"
If a court or the labor department orders a company/employer to cough up back pay and overtime for any employee that was classified as Exempt, when they should have been classified as Non-exempt, the employer may not have adequate records to show, or know, how may hours the employee may have actually worked. Most courts have accepted the employee’s inflated estimates particularly when the company cannot produce this information.
In a recent case involving telephone giant Sprint, the company did an internal audit of its FLSA compliance and concluded that some customer service representatives were incorrectly classified as
Exempt computer professionals. The company subsequently reclassified these workers as
Non-exempt, hourly workers. One reclassified employee was provided an overtime paycheck of $8,200 as an estimate by Sprint of the overtime hours. The employee balked and estimated that he had often worked up to six overtime hours per day. He filed an FSLA action and lawsuit to recoup the unpaid overtime and won using his estimates.
The Court said in this decision that it was Sprint’s duty as an employer to prove how may hours an aggrieved employee worked, even though Sprint had originally classified him as Exempt. If Sprint couldn’t come up with the accurate records, the court could use the employee’s estimates. (Hunter v. Sprint, No. 04-0376, DC, 2006).
Nothing in the law prevents a company/employer from requiring all employees (Exempt and Non-exempt) to record hours by either punching a clock or filling out and maintaining a time sheet. With this procedure, the employer has adequate time records or future reference in any dispute over time worked. However, employers should be cautious and make sure they do not base Exempt employees’ compensation on the hours worked or you may jeopardize their exempt status.
