How To Tell Your Salaried Employees They Are Now Hourly

Management and leadership are often defined by important conversations. Sometimes those conversations are one-on-one, and other times the communication is with large groups of stakeholders, such as employees.

Back in 2014, the Fair Labor Standards Act started to be in the mainstream news more often after President Obama directed the Department of Labor (DOL) to examine the regulations for overtime rules and exemptions. After a lot of consideration and debate, the changes the DOL are implementing will result in millions of workers going from “salaried” to “hourly” on or about December 1, 2016.

While business leaders will be working behind the scenes to analyze these changes, one can’t forget about the communication that needs to accompany this type of change. Knowing how to effectively tell your salaried employees they are now hourly will help make for a smooth transition.

The change that has many employers working to understand the impact is to the salary level for exempt workers.

• Exempt workers are not eligible for overtime, often called by some “salaried” workers.
• Non-exempt workers are eligible for overtime after working 40 hours in a work week, often called “hourly” workers.

The change that will go into effect on December 1, 2016 moves the minimum salary level for a position to be exempt to $913 per week from its current $455 per week level.

Put another way, an employee could currently be classified as exempt if they make just $23,660 per year.

After December 1, 2016, that same employee would need to make $47,476 per year to be classified as exempt.

There are other duties tests that also have to be met for someone to be exempt from overtime, but if they do not meet the new salary threshold, the employee would be classified as non-exempt, and thus, eligible for overtime when they work over 40 hours in a work week.

Interestingly, the duties tests have not changed. Even though they have not changed, this extra attention to the FLSA is a good opportunity for employers to make sure currently-exempt workers are still meeting those duties tests.

Regardless of how you feel personally about the change, as a business leader you recognize the position this puts an organization. The analysis begins with figuring out who is currently exempt from overtime making less than $913 per week.

Once that information is known, it has to be decided if those individuals will become eligible for overtime or their salaries will be raised to meet or exceed the new threshold. For the employees that will be re-classified as non-exempt, this can be a tricky conversation.

While the FLSA considers non-exempt workers to be better off because they are eligible for overtime, many do not see it that way. Some employees will hear, “You were a salary employee and now you are an hourly employee” and feel slighted.

While HR, Finance and other managers are dealing with the analysis of the actual change to the FLSA salary level, consideration has to be given to how the change will be communicated. This is, after all, a change. Communication and change management are some of the true tests of management, communication and leadership.

Educate Early

Even before you know who is going to be affected, you want to begin communicating to employees that this change is coming. The other set of constituents that needs to understand the change are managers and supervisors. If they have employees moving from exempt to non-exempt, they will not only have the change management issues to work with, they will have the financial implications of more employees being eligible for overtime.

Utilizing communication tools while this deliberation is ongoing can put the topic front and center. Consider providing resources using your intranet or a newsletter and sets of FAQ’s about the change. All of these resources can be updated continuously based on the questions coming in from employees and other stakeholders.

Explain the FLSA Changes

Not everyone understands what it means to be exempt or non-exempt, which is the reason the terms “salaried” and “hourly” get thrown around so much. There are a lot of “hourly” employees who receive a regularly weekly salary, but they are eligible for overtime. Unfortunately, some employees wear the term “salaried” as a badge of honor. Relabeling them “hourly” often affects the pride or morale more than anything else.

Explaining the changes that have taken place to the FLSA will give employees context. Moving the salary threshold, in annual terms, from less than $24,000 to over $47,000 will impact millions of employees working for thousands of employers.

Another point to make is that even though the current limits have been in place for quite some time, the new salary levels will be updated every three years. FLSA classifications have always been a big deal to organizations, but this means that there will be a re-evaluation of the salary test every three years, making this an ongoing issue for organizations to monitor.

Highlight the Benefits of Being Non-Exempt

The DOL and FLSA view being non-exempt as more advantageous to the employee. The reason is simple, eligibility for overtime after working more than 40 hours in a work week. The FLSA exists to ensure that employees get a fair shake in wages and hours. The point of the change was to see more people being classified as non-exempt. Many employees are currently classified as exempt in administrative, executive and professional categories and may be working extra hours without receiving overtime.

The DOL, in making this change, is arguing that while they may meet the duties tests, employers need to pay more if they want these individuals to be exempt from overtime. The biggest selling point should be explaining to employees that by going from salary to hourly, they are now eligible for overtime.

Additional Considerations

The change from exempt to non-exempt does not mean anything else has to change for the employee unless that is something an employer decides to do on their own.

Employees do need to know how to track their time. Most employers have different processes for tracking non-exempt time than for exempt employees. You want to avoid a situation where an employee was moved to non-exempt but is not treated as such under the FLSA. This could create a legal liability for the company if not caught and resolved by paying the employee for hours worked.

Moving an employee from salary to hourly has the potential to be viewed both positively and negatively by employees. Embrace the opportunity to educate employees about the change, but don’t forget that managers can be a considerable ally as well. Dealing with a change like this can be difficult, but getting it out in the open early and communicating often can make a huge difference when moving a salary employee to hourly.