The Perils of “Rewarding” Exempt Employees


I’ve said it before: FLSA compliance  — the challenges of getting (and keeping) positions appropriately classified  — can be difficult enough.

And with the increasing U.S. Department of Labor focus on worker classification, the stakes are only going up. So why would we make the task even harder by “rewarding” FLSA exemption?

One of the struggles faced by HR and compensation pros in their efforts to do the right thing FLSA-wise is the counter-pressure brought to bear on the process by employees and their managers who regard the “exempt” designation as a status indicator, an acknowledgement of their professionalism, or even (yes, take a moment to appreciate the irony) a door to making more money.

Why do we “reward” exempt status?

Where do they get these crazy ideas? From us, of course. And because we design programs and policies that reward exemption status by making it a hurdle that must be crossed in order to get better pay or benefits.

For example:

  • We provide a higher level of benefits (e.g., more PTO or vacation days) to exempt employees.
  • We make exempt status a criteria for incentive plan participation — or for a higher tier of incentive opportunity.
  • We create an artificial salary ceiling for non-exempt employees by reserving certain salary grades for exempt jobs only (e.g., Grades 1-9 are nonexempt, Grades 10 and up are exempt…).

It’s all about compliance with the law

I do appreciate the fact that at least some of these practices may have been established with an eye toward compensating exempt employees for the loss of overtime; however, in my experience they create many more problems than they solve.

Let’s make FLSA “exempt” status purely about compliance with labor law. Let’s not allow our plans and practices to broadcast messages that say otherwise.

If you must limit eligibility for your reward plans, consider finding a legitimately business-related criteria to use instead.

This was originally published on Ann Bares’ Compensation Force blog.