Exempt and non-exempt compliance issues are often too tricky and unwieldy for busy HR departments to deal with. To complicate matters, an important federal-level HR law that would have gone into effect (and that people had planned for) was put on hold at the last minute in December 2016.
Compliance will only get more complicated from here.
Certainly, some companies may have their labor compliance nailed down. For those that don’t have the in-house resources, however, making use of an RPO vendor is one way to shed some light on the darkened nooks and crannies of regulations and compliance.
The question of how to deal with exempt and non-exempt employees in the wake of these future changes is complex.
Passing the Duties Test
The distinction does not just lie in how employees are paid or the words in their job titles, writes Carrie Luxem. More importantly, exempt vs. non-exempt boils down to a duties test: The daily tasks of a worker’s role will determine whether he or she is exempt.
Luxem points out the large room for confusion that this distinction may bring, noting that babysitters, sugar-processing workers and cab drivers, for example, are considered exempt.
This demonstrates how rules aimed at clarity often cloud vision. Indeed, in an interview at SHRM, attorney Robin Samuel says:
“The duties test has become so convoluted that even employment lawyers have difficulty figuring out who is performing exempt or non-exempt duties. The duties test is ripe for review and simplification.”
Whether organizations choose an RPO partner or labor lawyer to help guide their future action, employers will need to seek counsel. Those who don’t, and get the distinction wrong, may face penalties for non-compliance.
FLSA Amendments Could Lead to Reclassification of Employee Status
The proposed changes to some of the rules outlined in the Fair Labor Standards Act (FLSA), which we alluded to earlier, spawned months of worry. Projected for enaction on December 1, 2016, it has since been postponed for discussion. Still, doubt persists for a great many employers and HR departments.
Lynell Meeth, at MRA, writes that if and when the regulations come into action, employers will need to reclassify some of their white-collar employees. The changes are due to proposed amendments to the salary threshold, driving the minimum annual income for employees exempt from being paid overtime from $23,660 to $47,476.
Affected employees would need to be compensated with pay and a half for every extra hour worked after a 40-hour week of work.
Questions of non-compliance are most likely to come to light when it is time for payment, including overtime, which opens employers up to potential harm.
While employers may wish to make this process simpler, it is not that easy.
The Law Decides Who is Exempt or Non-exempt, Not Employers
Some employers may be tempted to decide unilaterally which employee is exempt or non-exempt, but this is not how it works. Contrary to prevailing opinion, Jennifer Hetherington at The Balance writes how the decision to classify an employee is often out of the employer’s control. The distinction is usually defined by the FLSA, and failure to comply can lead to lawsuits and fines.
Attorney Jonathan K, Driggs, at Payroll Experts, writes that clients who pay non-exempt employees on a salary basis make him nervous. This is because sooner or later they will violate the FLSA, he says. Driggs argues that this non-compliance can often happen in good faith, with employers trying to assist their employees with more convenient and personalized payment arrangements.
His message to employers: Don’t do it. You do not decide which employees are exempt or not; the law does.
Simplifying payroll is a potential motivator for companies to muddle the distinction between exempt and non-exempt employees.
If this is not all confusing enough, Alison Doyle, at The Balance, writes about further considerations that employers face. Additional federal, state and FLSA laws all affect how workers — including interns, independent contractors, temporary employees, volunteers, workers in training, and foreign workers — are classified.
This, is in turn, affects how these employees are paid. Contractors and consultants are treated differently and may not be working for just one company. Choosing an RPO vendor will help determine who needs to be paid when and how.
Obviously, potential lawsuits, costs accrued and time wasted rectifying the errors of misclassification are severe. But employee morale can suffer, too. This is the message from Chuck Leddy at Spark. He argues that employees who think an organization is not complying with FLSA classification standards will live in fear of severe litigation. This leads to disengagement and diminishes productivity.
Things to Consider When Choosing an RPO Partner
While the future of the law’s amendments has yet to be decided, it is clear that murky waters still lie ahead. It’s important to know what to do and when to do it for the sake of an organization’s stability and the well-being of its employees.
We advise companies to get well acquainted with the relevant labor law regardless of whether they seek an RPO partner. However, if organizations do seek to outsource, they should bear some key considerations in mind. Allison Reilly at the Recruitment Process Outsourcing Association writes how a consultative and collaborative approach to choosing a partner is essential.
Securing support from the executive team, she argues, helps facilitate the process, which can only work when treated in a consultative way. Tied to this approach is the need for realistic expectations. RPO vendors will not be able to solve every recruiting pain point instantly, Reilly writes. However, they can help organizations navigate the recruitment landscape, which can turn into a metaphorical minefield as regulations change.
Organizations will be able to go it alone without necessarily using RPO vendors. Robust hiring protocol and a devoted, well-trained HR department will serve the company admirably. However, choosing the right RPO partners can make things much easier.
This is what Eyal Katz, at Business2Community, argues when he compares HR and RPO vendors to cell phones. The former is like an older phone model whereas RPO vendors are the modern smartphone equivalents, Katz writes. It may take a little longer configuring a smartphone to your needs and preferences, but the efficiencies gained make up for it.
Katz argues that a reliable RPO partner pays for itself just in the hours saved by organizations no longer having to take care of recruitment issues.
RPO vendors are well placed to alleviate these concerns. Their knowledge and expertise takes away the headaches organizations often face when trying to navigate the murky regulatory waters on their own. However, each company seeking an RPO partner must choose wisely. They should define their needs, wants and aspirations and find the right outsourcing team to help achieve them.