Can you track exempt employees’ hours without jeopardizing their exempt status? Yes, but they won’t like it.
While employers are not required to track the time of an exempt employee, there is no prohibition against doing so. In other words, merely requiring an exempt, salaried employee to clock in and out will not destroy the employee’s exemption, as long as you don’t make any deductions from his or her salary based on the amount of time worked.
Pros and Cons of Tracking Exempt Time
There are, however, pros and cons to requiring exempt employees to track their time. The primary concern would be that requiring exempt employees to track and report hours worked may create a perception that the employee is not truly functioning with the discretion and independence necessary to qualify as an exempt employee. This is a factor the Department of Labor (DOL) or a court might consider in a close case.
Additional negative aspects of requiring exempt employees to track their time include:
- It may create a morale issue among a class of employees who find this demeaning; and
- If the employee actually is working a lot of hours, the record you are creating may someday be used against you if you have misclassified the employee.
The positive aspects of tracking exempt employee time include:
- It allows you to better track and compare productivity, efficiency, and attendance among exempt employees.
- It establishes proof of how many hours the employee is working, in case there is ever an issue that you have classified him incorrectly. Employees who claim they have been misclassified as exempt also tend to claim they worked A LOT of overtime; if you have records showing that was not the case, you will be at an advantage.
- It assists in tracking accrual and use of paid leave, and in tracking Family and Medical Leave Act (FMLA) usage.
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Can You Make Additional Payments?
Can you make additional payments to exempt employees without destroying their exemption? To satisfy the Fair Labor Standards Act’s (FLSA) minimum salary rules, the only requirement is that the employer must pay employees at least $455 per week, guaranteed. Providing extra compensation such as commissions or even overtime pay does not mean employees aren’t paid on a salary basis, as long as you don’t include those things in deciding whether they meet the minimum salary requirement. Nor can you include board, lodging, and other “extras” in your calculation of whether an employee meets the minimum salary requirement.
Furthermore, providing compensation over and above the employee’s set salary does not impact exempt status, even if that compensation comes in the form of pay at an hourly rate for each hour above the employee’s regular schedule. In short, you can provide these and other types of “perks” to exempt employees—you just can’t include them in your calculation of their salary to qualify them as exempt.
EXAMPLE: Lowe Urson is a law firm with offices in downtown Southville. It provides paid parking for employees who drive a car and bus passes for those who don’t. The monthly cost for either of those is $45. The firm has an arrangement with the garage in its building to be billed directly for employees’ parking expenses. It also purchases bus passes for employees who don’t drive to work and hands them out to employees on a monthly basis.
The firm has several staff members who would qualify for the administrative exemption except for the fact that their weekly salary is only $435. The office manager decided to include the value of the parking and/or bus passes in her calculation of those employees’ minimum salaries. Because that raised their salaries to more than $23,660, she reclassified them as exempt and informed them that they were no longer entitled to overtime pay.
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That is a violation of FLSA’s salary basis requirement. To comply with the FLSA, the office manager could have paid the employees an additional $45 per month (she could even do that in lieu of providing the parking and bus passes). That would have achieved the desired result of making the employees exempt without violating the FLSA.
In tomorrow’s Advisor, can you discipline exempt employees for absences, plus an introduction to the wage/hour guide that helps you find problems before the feds do.