How does changing an employee from salary to hourly benefit an employer?

Question

I am what the Fair Labor Standards Act (FLSA) considers a "learned professional" and I meet all 3 of the requirements for being exempt (annual salary).

For those who don't know, the FLSA sets the rules and regulation for pay and overtime. So being exempt means those rules means because I would be receiving a yearly salary, overtime regulations would not apply.

However, my company is still moving me to hourly wages (non-exempt) with no written or verbal explanation. I have asked several times "Why was I chosen?" and have also rephrased the question to "What are the company's requirements to consider an employee exempt?", but I have not received a response.

I have talked with the state (Texas) commissions office and legally my company does not have to give a reason for the move unless they decrease my pay (which was not the case)

My question is: What would be the benefit to an employer when moving a salaried employee to hourly wage.

Answer 1

The exempt vs non-exempt determination for "learned professionals" requires that you make over $455 per week and be salaried. Since they have switched you to hourly, you are no longer exempt. The legal requirements are specific, and you no longer meet them.

To be clear, the salary vs hourly decision is entirely theirs to make. If they want to make you hourly, however, they are required to pay overtime. This could be costly, depending on the needs of the business. Or it could cost nothing, if they prevent you from working any overtime.

Why would they do this? Companies with large numbers of exempt employees are sometimes subject to extra scrutiny. Exemption has been abused to deny workers rightful compensation for the hours they work. In the past, companies have designated employees as exempt in order to avoid paying overtime. Misclassifying an employee can be very expensive if the labor department notices, so it is safer to (A) designate the position as non-exempt, and (B) minimize or prohibit overtime.

There should be no negative effect on you personally from this change. Your hourly wage should be equivalent to your salary for the standard 40 hours/week. If they lowered your pay, you may have legal recourse depending on the state.

Answer 2

From the employer's standpoint, this is a risk management issue. The Department of Labor is holding companies to a more strict interpretation of the FLSA than it did in the past, and has reclassified many positions as non-exempt that have traditionally been held by exempt employees. See this Department of Labor document for information specific to employees in computer-related occupations, for example.

I have seen this at my own organization, where functions within my department who have been exempt for many years have been reclassified as non-exempt. I work for a law firm that provides assistance with labor and employment law, among other things, so this decision was carefully considered and implemented based upon the firm's interpretation of the law. That said, as you can imagine, this has not been popular with some of my staff.

I even have a supervisor who has been deemed non-exempt. I have tried to advocate for my staff, but the firm's position is that the law is the law, and it's not hard to see their side.

One thing to keep in mind is that, from the government's perspective, this is intended for your own protection. The change came about because many businesses were taking advantage of employees by requiring huge amounts of unpaid overtime for staff in "exempt" positions. It's not a perfect situation, but your company is stuck between a rock and a hard place and likely has very little choice in the matter.

Answer 3

You want to make sure then when you work 40 hours a week under the new plan you get the same pay as the old plan. You also know that if you work any overtime at all under the new plan, they will be paying you for that time.

Under the law exempt or non-exempt doesn't change how breaks are scheduled. That is a workplace rule to make sure that a worksite isn't left empty or below some minimum staffing level. You can be salaried and still have to follow the concept of core hours.

One reason they make employees non-exempt is to be able to control the overall shift schedule. The more control they need over when you arrive at the office, and when you leave the office, the more likely you will be made hourly.

Sometimes they switch employees to hourly, to overcompensate when they are concerned that some employees that should have been hourly were made exempt and they now owe back overtime pay. They could have been caught, or they knew of companies that were caught. It is safer for them if they consider too many employees as hourly.