The Rules of Engagement for Tracking Exempt Employees’ Time
The exempt versus nonexempt debate of employee classifications rages on in confusing employers. Many of the unfamiliar nuances of the law challenges employers in practical and not-so practical ways.
Included with those challenges is what to do about time tracking for exempt employees. Questions abound about what federal laws allow and what employers choose to do at their own discretion.
Federal Law and Exempt Employee Classification
Employees must satisfy salary and duties tests to receive the exempt classification. Generally, they are paid on a fixed, or predetermined, salary basis each pay period. Regulations regarding the salary basis requirement is enforced by the U.S. Department of Labor.
The minimum weekly salary amount according to federal rules is $455 per week; some states have a higher minimum weekly amount. Typically, employers can deduct nonexempt employee time based on work performance. The amount cannot be reduced if exempt employees work quality varies from the norm.
The Fair Labor Standards Act requires employers to pay an hourly wage to nonexempt employees. This includes overtime for all hours that exceed a 40-hour work week. Employers track hours worked to ensure employees are paid fairly.
Although employees with exempt status are not paid hourly, FLSA does not prohibit employers from tracking hours that they work. This supports some valid reasons employers may have to track the time. Some of those reasons include:
- 401(k) contributions
- PTO or hours-based benefits
- Client billing purposes
Employers may also choose to track hours of exempt workers to ensure all employees are treated equitably. There are few exceptions where the full salary is not paid. This includes clocking in late or leaving early.
Employer Considerations for Tracking Exempt Employees’ Time
Deciding to that time tracking for exempt employees is good the company, an employer will need to carefully consider how it uses the information. As previously explained, the salary of an exempt employee should never change based on hours worked.
Only under certain circumstances can an employer make a deduction from the exempt employee’s salary without putting the exempt status in jeopardy. For one or more full days of absenteeism for personal reasons that do not include sickness or disability, deduction is generally acceptable:
- To offset a government service such as jury duty fees or temporary military duty pay
- For penalties related to safety rules infractions that pose major consequences
- For unpaid disciplinary suspensions related to conduct rule infractions
- Unpaid leave under FMLA
- For an initial or terminal employment week when employee does not work a full week
In some situations, working an intermittent schedule under FMLA qualifies as a reason to dock an exempt employee’s salary. Some employers might decide to convert the employee to nonexempt status during this time. This way, tracking the employee’s time does not jeopardize his or her exempt status.
There are deductions that are viewed as red flags to FLSA compliance.
Deductions for business trips are not allowed when the employee is absent for company-related work. Lack of work is not a reason to deduct pay when the exempt employee is ready, willing and able to work.
What are the Pros and Cons of Time Tracking For Exempt Employees?
There are good reasons and not so good reasons for employers to consider time tracking for exempt employees. A primary concern to enforcing this requirement is the perception that exempt employees are not functioning with the discretion and independence normally associated with this classification.
This is the case whether employees use a self-service system or other time & attendance software, Other negative perceptions employers should consider are:
- Creating a morale issue if exempt employees feel demeaned to track their time
- Leaving a paper trail that shows the employee working an excessive number of hours
- Automated time tracking reports might prove an employee was misclassified which can be used against the employer
The positive side, however, is something employers should weigh carefully. Things to consider include:
- Better tracking system to compare efficiency, productivity and attendance patterns among exempt workers
- Establishing proof for the number of hours worked if a classification issue is raised, especially if exempt employees claim they work a great deal of overtime
- Tracking use of paid leave and accrual amounts
- Tracking FMLA usage
While employers use their own discretion in tracking exempt employees’ work hours, they must also ensure the information collected is used properly. This means balancing labor laws with business needs.