Employer Tips on Employee Reclassification Buy-In
September 29th, 2020
The Department of Labor (DOL) periodically raises the earnings threshold necessary for executive, professional and administrative employees to qualify for FLSA exemption from overtime wages. The last change went into effect in January 2020 and raised the earning threshold to $35,568/year. Whenever this earnings threshold changes, it may require you to evaluate the status of certain employees.
For those employees who no longer make enough money to qualify for exemption, you have two options:
- Raise their compensation to meet the new threshold so that your employees can maintain their exempt status
- Leave their earnings levels the same and reclassify them as non-exempt
Keep in mind that meeting the earnings threshold is only one part of the equation for qualifying as exempt. You’ll also need to make sure the employee’s role still meets the duties test if you plan on maintaining their exempt status.
If you choose to reclassify an employee, it’s crucial that you handle this decision delicately. This change can significantly impact your employee’s:
- Job duties
- Work routine
- Work schedule
Clear, honest and compassionate communication is essential to ensuring your reclassified employees understand the reasons this happened and how it will impact them moving forward. This can often be a difficult decision for an employee to accept, and it may even take some time for them to buy in. The following tips will help you address the situation in a manner that reduces the risk of plummeting employee morale, significant employee turnover, and even the potential for lawsuits.
Assure Your Employee This Isn’t a Demotion
It’s common for employees to view being reclassified as non-exempt as a demotion. It’s crucial that you dispel this fallacy in order to prevent morale from sinking. When you discuss the situation with your reclassified employees, clearly state that this is occurring in order to comply with changes in government regulations, and it doesn’t constitute a demotion due to poor performance. Take this opportunity to provide the employee with some positive feedback about their job performance and express your appreciation for their contributions to the company. When appropriate, you may want to explain avenues for these employees to advance in the company moving forward.
It’s also important to understand that non-exempt employees can remain on salary. You don’t have to switch to paying them on an hourly basis. Maintaining their current salary structure instead of making them hourly employees is a good way to prevent making the reclassification feel like a demotion. In addition, if your current policies provide more benefits to exempt employees than non-exempt employees, you may want to revisit them. Losing benefits is a surefire way to damage employee morale.
Highlight the Benefits of Non-Exempt Status
You should also explain the ways in which this reclassification can be a positive change. For example, there may be new opportunities to receive overtime pay that will increase an employee’s overall earnings. Keep in mind that if your company plans to limit the amount of overtime available, this should be communicated clearly to the employee.
Reclassification to non-exempt status may also result in more time off for these employees. If you’re trying to keep overtime costs at a moderate level, these employees will feel less pressure to work late or answer emails when they’re not in the office. For non-exempt employees, you won’t be working around the clock. When you leave the office, you are truly not working. This can lead to better work/life balance.
Non-exempt employees may also experience some flexibility in their work schedules. If they need to work late due to the needs of a specific project, non-exempt employees may have the ability to work reduced hours on a different day in order to minimize overtime. Keep in mind that there are certain regulations regarding making up missed work hours:
- If an employee makes up missed hours the following week, it will count towards that current week’s 40 hours for overtime purposes
- To avoid overtime accruals, you may need to institute a policy that all missed hours must be made up during that same week
Focus on Efforts to Keep Employees Whole
Employee reclassification to non-exempt status will raise a variety of concerns with all impacted employees regarding how this will affect their compensation and benefits. It’s important that you address these concerns clearly during your initial conversation with employees. Always place the focus of this discussion on the efforts you’re taking to keep employees whole:
- Salary – If you’ve decided to reclassify an employee, it’s likely because you weren’t able to raise their salary to meet the new earnings threshold. However, in order to prevent poor employee morale, it’s crucial that this move doesn’t result in a pay cut. Outline the steps being taken to ensure the employee maintains the same take-home pay. If there are overtime opportunities that can result in an opportunity for additional pay, make sure the employee is made aware of how this will be managed.
- Health insurance – Under the terms of the Affordable Care Act (ACA), most reclassified employees will continue to qualify for health insurance as long as they’re working a minimum of 30 hours per week. Make sure your employees understand that these benefits will still be available to them.
- PTO – Your company’s PTO policy will dictate whether a reclassified employee will retain these benefits. If PTO is applied differently to exempt and non-exempt employees, you may want to revisit your policy to ensure everyone has the same access to these benefits. Alternatively, you may want to grandfather reclassified employees so that they are allowed to maintain their PTO benefits moving forward. Losing time off perks will be detrimental to employee morale, so it’s in your best interest to figure out a way for reclassified employees to keep their PTO.
Communicate in Large Group and Individually
Transparency is crucial when employee reclassifications occur. You don’t want certain employees hearing rumors about this and not understanding who is impacted. The best way to ensure your staff receives the correct information is to schedule a meeting with your full team to explain the changes that are coming and the reasons why (which typically revolve around government compliance). This will prevent sinking morale that often occurs from the spread of rumors and uncertainty.
However, it is not a good idea to single out the employees impacted at an all-staff meeting. This will likely result in embarrassment and frustration for those singled out. During this initial meeting, let your team know that all employees impacted will be spoken to individually.
The next step is to set up one-on-one meetings with all of your employees being reclassified. Be prepared for these discussions to be difficult. Each employee will react differently; you need to listen to employee concerns and address them in a reassuring, positive manner.
Some important points to share with these employees include:
- Reasons why some employees are impacted by reclassification while others aren’t
- What the changes mean to the employee’s salary and benefits (always focus on your efforts to keep the employee whole)
- Reassure the employee of their value to your company
If you’ve built strong relationships with your employees, you should have a general sense of how each person will react to this news. Avoid a cookie-cutter approach to these conversations. Instead, take a unique approach to most effectively connect with each person on an individual level. This will help mitigate any frustration or reduced morale.
Premier Employer Services Can Help
The way in which employee classification matters are handled can have a significant impact on your company moving forward. At Premier Employer Services, we can help you navigate this process to ensure these discussions are framed in a positive manner and all potential employee issues are addressed before changes in exemption status go into effect.
- Determine your specific goals
- Understand your unique challenges
- Understand your current workforce dynamic
- Create a customized platform to achieve a successful resolution to the employee reclassification process
You have a unique understanding of your workforce that is crucial to navigating this process effectively. As your dedicated partner, we’ll leverage our knowledge to provide customized recommendations that fit the specific needs of your team. This will set you up for success as your employees adjust to pending changes in their employment status.
Please contact us today to schedule a consultation. Premier Employment Services serves companies in the Denver, Colorado area.