In the first installment on FLSA classifications we suggested that employers perform an internal audit to assess compliance with FLSA and state law exemptions from overtime. In this post, we review a key strategic tool to address the misclassifications. Reclassification from exempt to non-exempt is a key compliance step under the FLSA. When done proactively, it helps reduce risk and ensures employees are properly compensated.
When Should You Reclassify?
Reclassification is appropriate when a position no longer meets exempt requirements. Common triggers include:
– Changes in job duties
– Failure to meet salary basis requirements
– Audit findings
– Organizational restructuring
– Increased enforcement risk
Classification should be based on actual duties, not job titles.
Five Steps for Reclassification
- Conduct a duties-based analysis.
Start with a fresh, objective review of the role:
- Compare current duties to FLSA exemption criteria
- Interview managers or incumbents if needed
- Avoid relying solely on outdated job descriptions
Document your analysis—even informal notes can help demonstrate good-faith compliance.
- Update the job description.
Before making the change official:
- Revise the job description to reflect actual, current duties
- Ensure alignment between the description and how the job is performed
This becomes a key piece of your compliance record.
- Determine pay structure and overtime approach.
Moving to non-exempt means the employee is now eligible for overtime. You’ll need to decide:
- Hourly vs. salary non-exempt (both are permissible). A salary basis structure works for a consistent weekly schedule, but still has compliance requirements.
- Expected hours and scheduling practices
- Overtime approval and tracking procedures
Also consider whether base pay needs adjustment to account for anticipated overtime.
- Communicate the change to the employee.
This step is often underestimated. An employee paid on a salary basis will likely be concerned about moving to an hourly pay structure.
- Run pay scenarios to assist the employee in understanding any financial impact
- Frame the change as a compliance-driven update, not a demotion and avoid language that describes pay practices as “wrong” or “unlawful.”
- Clearly explain:
- Timekeeping requirements
- Overtime eligibility
- Train managers on how to reinforce the message
Keep an open dialogue with the employee to express concerns or ask questions about the change in the pay structure.
- Document the process.
Your file should reflect a clear, defensible process:
- Written classification analysis (even brief)
- Updated job description
- Internal approval, e.g. use normal change in status or action forms (HR/legal, if applicable)
- Employee communication or acknowledgment
- Payroll and timekeeping changes
Good documentation is critical if the decision is ever questioned by regulators or in litigation.
Final Thought
Reclassification is a proactive compliance measure that can reduce legal risk when handled properly. Do not hesitate to address misclassifications through a thoughtful reclassification process. It will mitigate damages that can arise from a misclassified position, and the process will demonstrate a good faith compliance effort.
For more information on this and other employment compliance issues, please contact Neva Stotler or Anna Truckley.
