What exempt/nonexempt classification issues must be considered?

Classification of supervisors. The classification of employees as exempt supervisors has historically been a tricky issue under the FLSA because a number of supervisors perform some degree of nonexempt work. Regulations, effective August 23, 2004, clarify the difference between working supervisors and retail supervisors. Working supervisors in non-retail settings, like manufacturing establishments, often perform the same work carried out by their subordinates, such as ordinary production work or repetitive tasks. These individuals are nonexempt, even though they have some supervisory duties. In contrast, supervisors in retail establishments are exempt employees, despite the fact that they carry out the same duties as subordinates, so long as they schedule employees, assign work, manage inventory, or perform other management functions.

Jobs change over time. A position that was correctly classified as exempt may have evolved over time to a position that no longer meets the exemption tests. Conduct periodic job analysis of what the person actually does on a day-to-day basis.

Misclassification from nonexempt to exempt. One of the most common violations of FLSA is the misclassification of a job from nonexempt to exempt status. Carefully review the exemptions periodically and retain documentation to support your decision. Records for exempt employees should show that all of the qualifying conditions for exemption have been met.

Affirm the procedure for managers to request that a position be reclassified from nonexempt to exempt status. Communicate strongly that the classification is a legal test and not a management decision. Carefully review how and who can change a classification from nonexempt to exempt.

Covered and noncovered capacity. When an employee is engaged in both a covered and a noncovered capacity under the FLSA, his or her working time cannot be segregated during a workweek; the employee is entitled to the statutory benefits with respect to all of the hours worked during the workweek. The same may or may not be true where an employee is engaged in both a covered and an exempt capacity during a particular workweek; limited leeways are allowed for nonexempt work without defeating some of the exemptions. In any event, occasional, isolated instances of coverage will not confer the benefits of the FLSA upon an employee.

Salary or hourly wage? If you want to treat an employee as exempt, you must pay him or her a salary (or on a fee basis, in some cases). Employees who are paid by hourly wage are automatically considered to be nonexempt. However, you can have nonexempt employers who are paid by salary.

When to apply exemption. Generally, an exemption from the FLSA is figured on a workweek basis. Thus, an employee must be exempt from FLSA coverage during a whole workweek or he will have to be paid the FLSA-required wages for all of the hours worked, including those devoted to exempt work.

Docking. You cannot pay exempt staff in any way other than a salary (or, in some cases, a fee basis) and you cannot dock an exempt employee's salary for partial day absences. Generally, deductions allowed include full day absences for personal reasons or illness. Verify that this policy is true for your company. [see Are any salary deductions from white-collar employees permitted? at ¶34,130 ].

Applicable exemptions. Review the exemption lists at ¶34,060 to see if your organization is taking all exemptions available, consistent with the law and your organization's philosophy and practice.