Important Notice:
This site has moved to, please update your bookmarks. If you were looking for a specific post, you can use the site search option or archives at the new domain to find it. Thank you!

Tuesday, January 29, 2008

Be Careful What You Wish For

Are you exempt or non-exempt? Judging by the questions I get, there is something psychologically satisfying about being declared a "professional." But there is something more than psychologically satisfying about getting a check with a large amount of overtime pay.

The Fair Labor Standards Act gives a bunch of criteria for evaluating a position to determine whether it is overtime eligible (non-exempt) or not (exempt). Unfortunately, even those of us with magical HR crystal balls can disagree over how a position should be categorized.

It's to the company's advantage to have as many exempt positions as possible. However, it's more to the company's advantage to be correct, or else they can get hit with lawsuits, fines, and then there's the issue of back overtime pay. (Most exempt employees don't punch a clock of any kind. So, there's no record of what hours actually were worked. So, the back overtime pay is nothing more than a guess--a very expensive guess.)

But, as I said, sometimes it's not exactly clear. Enter the lawyers--and the lawsuits.
IBM in recent months has been hit with lawsuits filed on behalf of thousands of U.S. employees who claim the company illegally classified them as exempt from federal and state overtime statutes in order to avoid paying them extra whenever they worked more than 40 hours per week.

Bad for IBM, but potentially good for the employees? Well, it depends. Read on:
The good news for those workers is that IBM now plans to grant them so-called "non-exempt" status so they can collect overtime pay. The bad news: IBM will cut their base salaries by 15% to make up the difference, InformationWeek has learned.

The plan has been greeted with howls of protest from affected workers.

So, if you have been someone who has been putting in a straight 40 hours a week, now that you are overtime eligible, you'll see your paycheck drop substantially. Even if you regularly work more than that, you may not benefit as much as you think you might.

If you were earning $50,000 a year before, that translates into an hourly wage of $24 an hour for a 40 hour work week, or $961 per week. Now, with your 15% pay cut, you are earning $20.43 per hour, or $817 a week. Sure, if you get overtime, you get $30 an hour. You've got to work nearly 5 extra hours every week to get your old base salary.

Now, if you were regularly putting in 50 hour work weeks anyway, this is a benefit to you. If you weren't--well, bummer. The hour you took off last week to go to a doctor appointment? As an exempt employee, it made no difference to your paycheck. As a non-exempt employee? You lose that hour of pay. Same thing goes for the occasional long lunch. Oh, and you need to clock out when you are eating lunch. Technically, you shouldn't even answer a work related question while on your lunch break.

There are benefits to being exempt and benefits to being nonexempt. Before you call a lawyer and start a class action suit, you want to think through all of these things. And if a lawyer calls you, ask yourself why he's doing it? Is it for your good or for his financial gain? You may not be pleased with the outcome.


Vitriolic Virchow said...

What frosts me the most is the businesses who want to have it both ways. You're non-exempt when it comes to accruing overtime, AND you have to punch a time clock and you'll be docked if you do come in an hour late. I've had that situation and I tell you it's the WORST of both worlds.

HR Wench said...

Evil - Excellent anlaysis. I'm printing this entry and posting it in the lunch room. Ok not really but boy am I tempted!

Vitrolic Virchow - In my state it doesn't work like that. The workweek is defined by the employer (let's say they choose Monday through Sunday) and non-exempts that work OVER 40 hours between those two days get OT. So let's say you work 10 hours on Monday but 6 hours on Tuesday and then 8 hours each on Weds, Thurs and Fri that equals 40 hours regular pay. In California it is a bit different, non-exempts get OT pay for any hours worked over 8 in a work day and the work week doesn't matter. I think the only other states that have regs like that are NV and CO but there are other details (like in CO it has to be over 12 hours in one day to hit OT or something like that).

another hr rep said...

Interesting article on a very misunderstood issue by non-HR employees. I have faced the opposite problem within my companies. Managers and mainly junior employees who demand a position be "exempt" because they equate it to being 'professional' vs. clerical/blue-collar work, and thereby view it as more prestigious.

Princess Sparkle Pants said...

I'll tell you... bottom line, it seems the Department of Labor will determine if you are being classified appropriately or not. The Big Bank where I worked dealt with some VERY large litigations where the employees were incorrectly classified as exempt, and it was determined that we owed them back-pay. Try figuring out back-pay for overtime that was not captured in any kind of time system. Hence the time clocks... Sigh.

Anonymous said...

One more thing to consider:

My job was reclassified. My pay was cut 15% (a substantial cut -- eliminating YEARS of raises). This affects my pension and now REQUIRES that I work overtime just to try to come out even.

And I was NOT part of any lawsuit. I don't know anyone who was reclassified who was. So no, I got no 'settlement'. And I wasn't told by HR WHY my job was considered non-exempt. In all the definitions I can see, I consider my job qualifying as exempt.

If you got a $18,000/year pay cut, wouldn't YOU be angry? I am.