Why was I changed from exempt to non-exempt at my job?

December 14, 2005 8:42 PM

Changed from an exempt to a non-exempt employee; what gives?

First, background: I work in Chicago for the technology division of a large investment bank based in NY. I am within a couple days of receiving my year end bonus and raise numbers. Yesterday, my bosses' boss called me directly to inform me that I was being changed from an exempt to a non-exempt employee, effective in the new year. I was told not to expect a change in my job responsibilities or hours. With my new status, I will make my base salary based on 40 hours per week. In addition, my "overtime premium" will be one half (not time-and-a-half) of my hourly rate for all hours worked over 40 in a workweek. They claim this is not being done to reward or compensate me. Every person in my group and department is exempt AFAIK (though some may have just received the same news I have). I am being told so far that this status will not affect my eligibility for my yearly bonus and raise. I currently work on average 45-55 hours a week, make a base salary of $70,000 and a bonus of $30k-$40k.

Questions/concerns: why the hell would they do this? Knowing I already work over 40 hours a week as a rule, why would they change my status to non-exempt and be effectively paying me more money for the same work? As I said, this is not considered a comp reward. Could they be doing this in reaction to a lawsuit or settlement by a former employee who claimed a violation of the Fair Labor Standards Act? Could this sudden change to non-exempt at my salary level and amount of hours I work in any way forecast my being layed off? Finally, as I understand it, the FLSA defines overtime as being time-and-a-half; why are they defining my "overtime premium" as 50% of my normal hourly rate?

posted by anonymous to work & money (19 comments total)

Well, I think you might be misinterpreting the "overtime premium." It could be 50% of your hourly pay added to your hourly pay for each hour worked over 40.
posted by Godbert at 9:03 PM on December 14, 2005

I can't answer the other parts, but "overtime premium" is the extra amount above your normal rate of pay earned for overtime. You will still make $x per hour for the overtime hours plus a premium of $.5x per hour. It's just another way of handling the payroll math, but it still works out time-and-a-half which is required by federal law for non-exempt employees.
posted by AstroGuy at 9:05 PM on December 14, 2005

I used to work in HR. Three things. 1) Ask for all of this all in writing. 2) Ask for clarification on the whole "time and a half" issue; from what I was told, what they are trying to do is illegal. The very nature of "non-exempt" means that you're not exempt from overtime rules and the laws that govern them. 3a) They may be doing this to set you (and others...) in a particular class of employees. Let me explain: Many benefits such as health care plans and 401k plans can be given to employees but only in a non-discriminatory way. You cannot simply let "Joe" join the 401k because you like him. You can however let "Joe" join the plan if he meets a specific criteria (exempt status...) you've setup and that you also let everyone else join who has met that criteria. 3b) Another reason they might be doing this is because they've realized that your job duties require that you be classified as a non-exempt employee. I remember when I was working as an exempt customer service agent for a company based in California (while I was living in Portland, OR) and after a few months they realized that the duties we were doing required them to make us non-exempt, pay us overtime, and pay us overtime for overtime work done in the past.
posted by pwb503 at 9:11 PM on December 14, 2005

It, uh, doesn't sound good. Skilled technology people are really supposed to be exempt as a rule. Generally you switch an employee from being exempt to non-exempt because (1) you can eliminate additional benefits (salaried benefits vs. paycheck benefits) (2) you plan to scale that employee's hours below 40 and/or significantly reduce his hourly pay (3) you plan to get rid of him. The overtime premium sounds like a miscommunication. Overtime has to be time-and-a-half, I'm pretty sure. You might talk to somebody and get that cleared up.
posted by nixerman at 9:11 PM on December 14, 2005

Woh, I'm sorry have to agree with nixerman, they are probably preparing to cut your hours/salary. I would suggest you start shopping yourself around.
posted by Mr T at 9:35 PM on December 14, 2005

As everybody else has said, I would understand an "overtime premium" as being an addition to your regular hourly rate; that is, they'll be paying you 1.5 times your base rate for any hours you work over 40.

Why they might do this: Apart from the HR issues mentioned above, is it possible that by changing your status they take you out of next year's bonus pool (this would depend on company bonus policy,) and thus are giving you an effective pay cut? Has anything else changed with your change in status (qualified vacation time, severance pay qualification, etc.)

In any event you should talk to somebody in HR and get the full ramifications of your status change itemized. While you're there, ask the HR person why this's being done. It's possible that there's a very good reason for what they're doing, and it's also possible that they'll tell you the truth (not that I'd give that more than a 50% chance.)

The same thing happened to my ex-roommate the year before his company was sold -- I think somehow the move made payroll look better -- so treating this as a warning sign isn't a bad idea.
posted by Opposite George at 10:07 PM on December 14, 2005

The fact your bosses boss delivered the news is bad news. It's a sort of a good cop / bad cop thing. It means they're expecting problem(s) to ensue and don't want your relationship with your boss to suffer, they don't want you blaming your boss, they don't want any productivity changes on your part happening as a result.

It's not immediately obvious what but looks like they're setting up a new set of circumstances to make their real move in the near future. Like a chess game.

To figure it out just look at the various forms of money (cash and benefits) they're paying you and imagine the ways the quantity of that may be reduced without calling it a pay cut or demotion or something negative. The guess above about you suddenly becoming ineligible for the bonus next year or perhaps a smaller one based on a different calculation sounds like a good one. I'll guess you're probably not alone and the smaller quantity of money you receive in future will be characterized as resulting from a mere 'policy' change and nothing at all to do with your performance personally.
posted by scheptech at 10:52 PM on December 14, 2005

In 2004, congress passed changes to FSLA regulations that governed who could and could not be considered exempt. It's possible that your employer is only now realizing that given your duties you aren't really exempt (or it may be that companies were given until the end of 2005 to comply with the new changes).

I don't know if that's the answer, but it seems reasonable to me. Your HR people or your manager should be able to tell you for sure.

Or, you can review who can and cannot be classified as exempt here to see if you think that you really should or should not be.
posted by willnot at 11:37 PM on December 14, 2005

You get a bonus that's half your yearly salary??? Sweet mother of god. I have never heard of such craziness

But yes, overtime premium just means the amount of cash you get as a premium on top of your hourly wage. I would make sure you read all the fine print in the agreement for this (get it in writing) to be sure they aren't taking anything else away from you (ie that humongous bonus, or other benefits). Worst case scenario - just ASK why they're doing this? But willnot could be right (just reading his answer now) - it could be that your job is no longer considered exempt.
posted by antifuse at 2:36 AM on December 15, 2005

You get a bonus that's half your yearly salary??? Sweet mother of god. I have never heard of such craziness

30%+ of your annual salary is standard in the financial sector.

I'd agree with the overall sentiment that this type of change is not good. If it was truly meant as a harmless change, a decent manager would explain it, and the possible repercussions.
posted by I Love Tacos at 3:03 AM on December 15, 2005

This happened earlier this year to almost half the IT staff where I work, because of the changes to FLSA.
posted by yeoz at 3:33 AM on December 15, 2005

30%+ of your annual salary is standard in the financial sector.

I've worked as a software developer in the financial sector, and this has not been my experience. Guess I was just working for the wrong folk!
posted by antifuse at 5:15 AM on December 15, 2005

It's happening a lot, all over--i've heard that if a certain department or certain level of employee are consistently racking up too much overtime (say, admin.assts), they'll change them all too.
posted by amberglow at 5:33 AM on December 15, 2005

This nothing (necessarily) to be alarmed about in terms of the security of your job.

As mentioned above, the law is changing who is eligible to be non-exempt. Also, a tightening enforcement environment and a surge of class action lawsuits are causing employers to audit their classifications, and in so doing they're discovering many "exempt" employees who not only aren't eligible to be exempt under the new rules, but who weren't eligible to be exempt under the old rules, either.

Investment banks and other companies with a high percentage of college-educated employees have fallen into the risky habit of classifying all but the lowest-level positions as exempt by default. It doesn't seem to me that they did it to be cheap -- their employees are well-compensated, with the amount of hours worked being reflected, by and large, in pay levels -- but instead did it to make payroll and personnel management less complicated.

That's where you might get worried -- the supervision of non-exempt employees can be pretty annoying to the supervisor and the supervised. All of sudden your colleagues and your manager will have to start dealing with overtime budgets, complicated scheduling, punching in and punching out (with mandatory breaks at specific times which can't be shortened or easily extended), etc.
posted by MattD at 5:59 AM on December 15, 2005

Whoa, wait a minute folks that are calling on impending demise of hours! Why would they cut the hours of an employee that will now be salaried? I would think that if you were going to cut hours back to less than 40 then you would put the employee on hourly wages not the opposite, no?
posted by Pollomacho at 7:39 AM on December 15, 2005

You have it backwards Pollomacho. Exempt = salaried. Non-exempt = hourly.
posted by smackfu at 7:43 AM on December 15, 2005

willnot and MattD are correct. US employers can't freely choose whether positions are exempt; they must follow federal and state labor laws. If they "changed" your status, this means that either the law changed, or they decided that their previous interpretation of the law was wrong.

smackfu: Not all salaried positions are exempt from overtime pay. To be exempt, the position must also meet several federal and/or state requirements (PDF from the Illinois DOL).
posted by mbrubeck at 10:14 AM on December 15, 2005

We've had the same thing happen around here at $computer_company - and it was nothing more than our HR person changing things around so she could go to HER boss and say "Look, I have saved the company money by converting X positions to non-exempt. Go me!"

The guy whos position was changed? He's a great guy and has absolutely nothing to worry about as far as his job goes. In fact, he's now lucky because he won't get stuck with after hours on-call stuff and even if he does, it's just extra pay (4 hours minimum)

So, it might not be a bad thing at all.. could just be a quirky HR droid.
posted by drstein at 11:35 AM on December 15, 2005

I'm an employment attorney, but I can't give advice over the internet. Two things:

1) The wage and hour division of the Department of Labor has a very comprehensive website concerning the Fair Labor Standards Act (the federal wage and hour). Here's the site: http://www.dol.gov/esa/whd/flsa/index.htm
That's your best source for info.

2) This is an issue that should be brought to the attention of a reputable employment attorney.

Wish I could help more.
posted by bananafish at 1:49 PM on December 15, 2005