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Monitor Job Classification Migrations from Exempt to Nonexempt

    By Allen Smith 

    It can be a short distance between a job position being classified as exempt and then nonexempt. Exempt positions can migrate to nonexempt for a variety of reasons, which raises the question of whether exempt employees should be required to fill out time sheets. Management attorneys are divided over whether they should.

    “Job duties and responsibilities can change in a lot of ways,” noted Paul DeCamp, an attorney with Jackson Lewis in Reston, Va., and former administrator of the U.S. Department of Labor’s Wage and Hour Division. “For example, if business levels drop, labor budgets change or staffing levels simply shift, people who were properly classified as exempt supervisors or managers may find that they no longer supervise two or more full-time equivalent employees” for purposes of the executive exemption.

    “Another concern is when companies exert more centralized control over issues, whether that means inventory control or hiring and firing or any of the other types of decisions that used to occur at the local level, there may come a point when the manager or supervisor has ceased to be involved in significant managerial decisions and may effectively be downgraded to a team lead,” he added.

    “Or sales roles that used to be [conducted] primarily outside may shift toward involving more customer contact via telephone and e-mail as technology improves, potentially moving the role toward more of an inside sales position,” DeCamp observed.

    Time Sheets for Exempt Employees

    With the possibility of exempt employees being reclassified as nonexempt, employers that are uncertain about their classifications might want to make exempt employees track their time, particularly if positions fall within gray areas, according to James Nicholas, an attorney with Mintz Levin in Boston.

    He said that often it is at least arguable that a position that seems to fit under the administrative exemption is, in fact, nonexempt.

    Tracking time for exempts whose classification is iffy ensures “that some record exists to establish whether and to what extent overtime was actually worked by these employees, if the employer was ever challenged either by a governmental agency or in civil litigation,” he remarked. But Nicholas also cautioned that this approach “could signal that the employer is simply not confident in any of its classifications and could invite scrutiny by the Department of Labor or counterpart state agencies.”

    “In some companies, there is a business imperative to have exempt employees record time,” DeCamp noted. “We see this in law, government contracting, IT and a few other industries where exempt employees record at least some of their time so that the employer can bill it to a customer or to an internal cost center.” Another business practice is asking employees to informally note the time they spend working on projects for internal clients to keep track of staffing burdens and needs.
    However, without any kind of business need, “I wouldn’t recommend that employers impose that requirement simply as a hedge against the possibility that exempt roles might someday become nonexempt,” he said. “The disruption to the business, including the cost of maintaining broader time-keeping, as well as the hit to employee morale, is probably not worth it.”

    Jennifer Shaw, an attorney with Shaw Valenza in Sacramento, Calif., was more blunt about making exempt employees record their time, calling it “a terrible idea.” She added, “The employer needs to make a solid decision upfront. By making exempt employees record their hours, it looks like the employer is treating them as nonexempt. Bad idea.”

    But there’s disagreement on this point. Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former administrator with the Wage and Hour Division, said, “It is a good practice for an employer to require exempt employers, as well as nonexempt employees, to maintain records of their hours. This was noted in the preamble to the 2004 final rule and reinforced in several [Wage and Hour] opinion letters.”

    DeCamp said having exempt employees record their time “isn’t necessarily a good practice or a bad practice. Most employers that I have worked with do not require their exempt employees to keep time records, except perhaps for purposes of recording absences in order to facilitate paid time off.”

    ‘Constant Vigilance’

    Monitoring which positions have migrated from exempt to nonexempt “is an area that requires constant vigilance,” DeCamp said. 

    “For supervisory and managerial roles, someone should regularly monitor the staffing levels to ensure that employees subject to the executive exemption supervise at least 80 hours per week of subordinate employee time,” he noted. “Indeed, some companies use a figure higher than 80 hours as a safety buffer.

    “More generally, HR and legal need to keep an eye out for changes in technology, business processes and automation that may have the effect of either simplifying otherwise complex and discretionary tasks, or moving outside sales roles inside, or otherwise undermining the basis for treating employees as exempt,” he concluded.

    Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.