Let's Stop Shooting Ourselves in the Foot, Compliance-Wise

Wage and hour litigation is on the rise, as my fellow blogger Becky Regan confirmed in her post yesterday.

As compensation and HR professionals charged with FLSA compliance, we face a host of challenges in ensuring that our organizations' jobs are properly classified.  Not the least of these is pushback from managers and employees who see an exempt designation as an acknowledgment of professionalism and status, or (somewhat ironically) a way to get more money.

So, why do we insist on making our lives harder than they have to be by...

• Making exempt status a criteria for incentive plan eligibility, or for a higher award tier within the incentive plan?
• Creating an artificial salary ceiling for nonexempt employees by reserving certain salary grade levels (grades 12 and up, for example) for exempt positions only?
• Making exempt status the criteria for moving from a cubicle to an office?
• Providing a higher level of benefits (such as more vacation, more PTO days or a larger life insurance benefit) to exempt employees?

Come on, people!

You can't expect your managers and employees to buy the argument that FLSA status is solely about compliance with overtime laws when your HR policies showcase it as the hurdle to be crossed for better perks, benefits and pay.

So here's a call to stop shooting ourselves in the foot and throwing boulders into our own paths.  Make FLSA compliance more straightforward and less baggage-ridden.  If you must limit the eligibility for different reward plans and opportunities, please find some genuinely business-related criteria to use instead.

Thanks for listening.

Ann Bares is the Editor of Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.   She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time.  Follow her on Twitter at @annbares.

Image: Creative Commons Photo "Stop" by Brainware3000

Comments

[Klaus]

People tend to use some of the reasons you mentioned---eg, higher status, bonus plan eligibility, more PTO---to compensate for the loss of overtime pay that goes with the move from non-exempt to exempt status.

[Michael Haberman, SPHR]

Ann:
One of the reasons non-exempt employees are not included in incentive plans is that if those incentives are non-discretionary they then have to be used to calculate or recalculate what a non-exempt employees gets paid for the period of time in which the bonus was earned. Thus there is an increased cost of the bonus, that being the extra OT and the cost of recalculating the OT. It has the potential for making that incentive program much more expensive than intended.

Legislation was introduced to take care of this problem during the Bush Administration, however, it was shot down by the Democrats bowing to Union pressure.

[Klaus]

Many companies have gotten around the issue Michael mentioned because the FLSA allows an alternative method of calcualtion of bonus payments to non-exempt employees:

29CFR778.210 – Percentage of Total Earnings as Bonus
Occasionally, a bonus may be written as a percent of an employee’s wages. If the plan is written so the bonus would include a percentage of both straight time and overtime, you would not need to re-calculate the overtime. The example in the regulation is a performance bonus that pays 10 percent of straight time and 10 percent of overtime earnings. Take note, the regulation states this is an acceptable practice, as long as it is not used to circumvent the overtime requirements of the act.

http://www.worldatwork.org/waw/adimLink?id=17207&nonav=yes

[Michael Haberman, SPHR]

Thanks Klaus. Great information to have.

[Michael Haberman, SPHR]

Hey Klaus. That link you posted requires World at work membership. Have another?

[Klaus]

Michael,

Link to FLSA:

http://www.dol.gov/dol/allcfr/Title_29/Part_778/29CFR778.210.htm

[Ann Bares]

Thanks, Mike and Klaus, for the great follow-on points and discussion here ... and Klaus, for sharing the W@S/DOL link.