As employers try to figure out how to cope with the coming increase in the minimum salary for the executive, administrative and professional employees, some find themselves with job classifications where the salary scale straddles the new line between exempt and non-exempt. Can employers in this situation categorize employees whose compensation falls below the line as non-exempt, while treating those with the same job title but with higher salaries as exempt?
In theory, sure. But it could get complicated.
Let’s start with the basics. Under the FLSA, employees who meet one of the duties tests for executive, administrative or professional employees, are paid on a salary basis, and earn at least the established minimum salary can be classified as exempt. Take any one of those ingredients away and the employee cannot be treated as exempt. When it comes to the “salary basis” part of the test, taking improper deductions from the salary of an exempt employee can jeopardize exempt status not just for that employee, but also for other employees in the same job classification who report to the same manager. If that is true of the salary basis part of the test, isn’t same true of the salary level test too?
Not necessarily. The rules for the salary basis test make a fair assumption that employees in the same job classification are likely to be subject to the same policies as other employees in the same group. Treat one supposedly exempt employee like an hourly employee, and it is probably fair to assume that the employer will treat other exempt employees in the same category like hourly employees.
But what if the employer, up front, splits the job classification into exempt and non-exempt groups? At that point, as long as the employer consistently pays the exempt group on a salary basis, without improperly docking their salary, it has effectively created two distinct categories, one exempt and one non-exempt. If it is clear and explicit about doing this, there would seem to be no principled reason why paying the hourly folks on an hourly basis should jeopardize the exempt status of the exempt group.
That being said, this approach may introduce some problems. First, generally speaking, people who perform the same work have an expectation that they will receive the same pay. There might be many reasons why employees within the same job title have different pay, such as differences in qualifications, experience or seniority. But even where there are sound justifications for such pay differences, employers may want to think twice before they make a fundamental change in the method of compensation that may cause employees to feel that they are being treated less favorably than someone who they see, and who the employer still nominally categorizes, as their equal.
Second, dividing a job classification in this way creates a situation in which people who earn less than the minimum salary level will be entitled to overtime pay, while those who earn above that level will not. If employees in the affected groups rarely work overtime this may not be a major problem. But if significant overtime is involved, it could result in the theoretically lower-paid hourly employees earning more than their salaried coworkers, at least in certain workweeks.
Of course none of these potential problems is insurmountable. One way of helping to mitigate these issues may be to expressly create a new classification – for example, divide an “Accountant” title into “Accountant 1” and “Accountant 2,” with the higher-level classification being exempt, and the lower non-exempt. That sort of reorganization carries its own challenges, but it may be easier for employees and managers to wrap their heads around than an arbitrary (and likely changing) minimum salary level. Whatever approach an employer adopts, the key to success will be good planning and clear communications with all involved.