Are your employees exempt?

A number of organizations are feeling the pain of incorrectly classifying some employees as exempt. Surely, one can see the benefit of calling an employee exempt… namely, no overtime!

But is the perception of the cost savings worth the so called benefit? Think about IBM, who in 2006 was ordered to pay 65 million dollars in unpaid overtime. And they’re not the only ones who have seen such class action suits.

Well, IBM recently announced that they will be changing the status of those employees to non-exempt, and therefore make them eligible to collect overtime. So you’d think that these employees would be ecstatic… except that they also got a 15% pay cut!

That’s right… IBM apparently did the math and figured that this was the amount of the base pay they would have to reduce to ensure that if the expected overtime did actually transpire, then they’d remain cost neutral. I gotta give it to the folks at IBM… they got balls!

While this is legal, it raises an interesting employee relations challenge, to say the least :-) I’m sure there are some really pissed off employees over there.

But the moral of the story is this… not only is it important to properly classify your employees as exempt or non-exempt (for FLSA purposes), its equally as important to track their time properly, and maintain proper records of that time. You never know when somebody will challenge the hours you say they worked and without some good evidence, chances are that the courts will believe the them.