Non-exempt and exempt: What do these terms mean and why does it matter?

In eight months the way tribal employers pay their workers will likely change because of a change in the way the law’s regulations interpret which workers must be eligible for overtime compensation (non-exempt) and which workers are not entitled (exempt).  Those employees who are eligible for overtime compensation will increase.  Statistics suggest 1 in 4 employees will move to overtime eligible so therefore this is a good time to evaluate whether your present system complies with the rules and whether you are prepared for these changes.  Remember, whether the federal government’s overtime law applies to tribal employers is an open question, but if it applies or if tribal employers follow these rules, the rules are about to change.  When we discuss these changes with tribal council, directors and managers, sharing this guide to overtime eligibility may better facilitate these conversations.  Much of this newsletter is sourced to a similar guide presented by Purdue University but modified to reflect changes in the rules.

Definitions

The terms come from a depression era law called the Fair Labor Standards Act (FLSA). The FLSA was written to protect workers from working long hours without extra compensation. It was also designed to provide an incentive for employers to hire additional workers. At the time the law was written, it was cheaper to hire more workers than to pay overtime wages to fewer workers.

Employees who work in non-exempt positions are not exempt from the overtime pay requirements of the FLSA. In other words non-exempt employees are overtime eligible.  They keep records of the specific times they work so that they are paid overtime when they work more than 40 hours in a workweek. Overtime is paid at 1.5 times the employee’s regular rate.  The regular rate in some instances will exceed the employee’s hourly rate.

Employees in exempt positions do not receive overtime pay no matter how many hours they work in a workweek. Since they do not receive overtime pay, there is no need for them to keep records of the specific hours they work.

Examples

The FLSA includes language that makes distinctions between exempt and non-exempt work.
Examples of non-exempt positions include receptionists, pharmacy assistants, office coordinators, skilled trades, technical and clerical, service maintenance, and many others. Employees in these positions often explain procedures, apply policy, are usually supervised, and typically require varying degrees of analytical and interpersonal skills. They are vital in representing the business to the public and in carrying out its activities.

The law defines other occupations as exempt. These positions create, interpret, and apply policy, decide what the organization will do, and exercise discretion about significant matters. Examples include tribal administrators, CFO, and program administrators. Other exempt occupations may require advanced degrees or the exercise of creativity, such as actors, writers of original publications, social workers, certified public accountants, and scientists. People in executive occupations manage other employees and are also exempt.

The law has made a distinction between the two types of work. The FLSA is designed to provide protection for employees who carry out the work of the business.

How exemption status is determined?

Typically, the human resources team has the responsibility for determining the exemption status of employees.  Determining exemption status is a very complex process. When reviewing a job for exemption determination, human resources considers the primary purpose of the position and how the tasks fit with the purpose. Human resources may use organization charts, compare similar positions, use field manuals, and read through FLSA guidebooks and legal opinion letters written by the Department of Labor (DOL), the agency that administers the FLSA. Human resources may also consult with peer institutions to see whether or not they have exempted similar positions. Sometimes human resources will seek legal counsel before determining exemption status. Many interrelated factors come into play, and in some instances it may be a court of law that makes the ultimate determination.

Why it matters

The DOL believes the FLSA applies to many tribal employers and the DOL has audited some tribe’s wage and hour practices. Tribal employers who exempt positions must be prepared to defend each exemption decision, and may be subject to paying fines and back pay if they exempt positions that do not meet the requirements for exemption.

Absent a DOL audit, tribal budgets and practices will be impacted by these changes since some (1 in 4) employees presently working 50 hours a week will be getting a raise in the form of overtime compensation if those employees continue to work in excess of 40 hours in a workweek.  Either tribal employers will be prepared to pay those employees extra compensation or the employers will be prepared to promulgate and enforce a policy which requires permission to work overtime.  When an employee works overtime without first getting permission, smart employers pay the overtime and manage employees to comply with the permission first policy.

What you need to do

If you supervise a mixture of exempt and non-exempt employees, the law requires you to manage their time differently.

As a supervisor, you can require your exempt employees to keep a regular schedule, and you need to let them know that at times it may be necessary for them to work outside their regular schedules. The FLSA does not require exempt employees to track their time, but if time is tracked employers should be very careful in altering pay in response to the time worked by exempt workers. Pay should not be docked because an exempt employees work schedule varies.

On the other hand, you need to make sure your non-exempt employees are recording all actual time worked, and that you are clear about your procedures for recording time and working overtime. The law requires you to pay for any and all work, so you need to make your expectations clear. If you require your employees to request permission to work overtime, you can discipline them if they work without permission, but you still must pay them for their time.

How to do it well

The trick with managing exempt and non-exempt employees and their time is to make sure they understand you manage them differently not because you want to exercise arbitrary control over one group or because you value your non-exempt employees less, but because the law requires it. Once everyone understands, it becomes easier to move past value judgments and toward getting your work goals accomplished.

This article relies on a summary provided by Purdue University.

Recommendation:  Keep tribal council and your colleagues informed regarding these potentially disruptive changes.  Determine if you comply with the rules today and get ready for the transition.

About the Author:

Richard McGee is a lawyer in Minneapolis, Minnesota who focuses his practice on gaming, gaming regulation, tribal employment and litigation in tribal, state and federal courts.  Richard has the privilege of working with tribes and tribal organizations on Human Resources matters including training.  Additionally, tribes ask Richard to address specific topics while incorporating the tribe’s related laws and policies into the sessions.  This is an invitation to engage Richard to produce and facilitate training for your tribe.