As a business owner, it is often imperative that you be flexible in your handling of business affairs. As your company grows, it may require that certain employees put in longer hours or that key individuals transition into more managerial or executive roles.
When these transitions happen, it can be necessary to change an employee’s wage from hourly to salary or salary to hourly, based on the role that they will be performing. For example, an executive at a company may expect to receive a full-time salary rather than being compensated on an hourly basis.
While employers may not always realize the significance of changing these classifications, they can have important ramifications for employees, including whether they are entitled to overtime or certain benefits. For this reason, the flexibility of a business must also be balanced with ensuring protections for existing workers. When not careful, transitioning employees from salaried to hourly (or back) can expose an employer to certain legal risks.
The Fair Labor Standards Act and Wages in Tacoma
The Fair Labor Standards Act (FLSA) sets forth federal standards that employers must follow in order to ensure compliance with wage laws. These standards are meant to protect employees from being manipulated or abused in workplace settings. For example, they require that certain employees be paid overtime if they work more than 40 hours a week.
In addition to the federal law, Washington has also enacted its own Washington Fair Labor Standards Act (WFLSA) that compliments and adds to the federal law.
The WFLSA allows employees to be classified as salaried or hourly based on the nature of their work and their “exempt” status. Exempt salaried workers are paid a fixed salary for their work without the possibility of overtime. Non-exempt salaried or hourly workers are entitled to overtime when they work more than 40 hours a week. Certain workers, such as those in executive capacities, may be exempt under the FLSA and Washington’s laws while others who often work in more blue-collar roles (like in factories) must be categorized as non-exempt so that their right to overtime is protected.
Switching between Hourly and Salaried
Although federal and state laws do set forth baseline rules that must be followed in categorizing employees, it allows employers the flexibility to change an employee’s categorization as their role changes, or as the needs of the organization change.
This means that employers have the ability to move existing employees from an hourly wage to a specific salary, or to get rid of their salary and move them back to hourly work.
For some employers, this can be an opportunity to manipulate legal classifications in order to minimize the benefits offered to employees. For example, a seasonal employer may put his or her employees on an hourly wage during the low season when they will not be working as many hours, but then switch them to salary during the high season in order to avoid paying overtime. This is an abuse of the classification process.
Employers who chose to switch employees between salaried and hourly must be careful to avoid any suggestion that they are changing the status of their employees based on any ulterior motive or interest in avoiding the protections of state and federal law.. While there are many legitimate reasons to change an employee’s wage calculation, the federal government may become suspicious of such changes, particularly when they occur frequently.
Protecting Your Business When Changing the Classification of Employees
The best way to avoid any suggestion of impropriety is to carefully document the roles and responsibilities given to employees and how those roles and responsibilities have changed over time, leading to the need to change their wage classification.
For example, when you hire an administrative assistant into an hourly role, you may want to have a clearly stated job description that sets forth the fact that she is not in an executive or professional capacity under Washington’s test for executive roles. .
Later on, when she receives a promotion, the details of her new job should again be set forth. Perhaps she has moved into a position of managing all of the administrative assistants in the company, which does permit her to exercise executive duties and places her in a professional role. This explanation can also justify the corresponding move from an hourly wage to a salaried one.
The employer should also be prepared to clearly document when the change was made and to show that the change in wage is consistent with the change in responsibility. Giving an employee new responsibilities but not changing his or her salary until six months later can hurt an employer’s argument that the wage reclassification was done in good faith.
In addition to making sure changes are well documented, employers should also be very careful to avoid making multiple changes to an employee’s wage classification. Moving an employee back and forth between hourly and salaried wages can be very difficult to justify and will often be a red flag for both the federal government and Washington’s Department of Labor and Industries.
Finally, employers should be aware that these wage classification responsibilities should not be taken lightly. Penalties for misclassification of employees can be very significant.
Washington Attorneys Assisting Your Compliance with Federal and State Wage Laws
When you are a small and growing business, keeping track of employment laws and responsibilities can be very overwhelming. Employment law is a very specialized area, and the law is constantly changing. It can quickly become difficult to keep up.
At Blado Kiger Bolan PS, our employment law attorneys take the pressure off of your shoulders by independently monitoring and evaluating your practices and procedures with employees to ensure they are in compliance with Washington and federal laws. Our attorneys can set forth policies for you to use, evaluate changes you make to positions, and sign off on employee wage reclassification.
In the event you face a possible complaint from an employee or an investigation into your wage practices, we also assist employers in dealing with these challenges both inside and outside the courtroom. For more information, contact us online or at 253-272-2997.