What benefit does an employer derive from hiring employees as salaried nonexempt?

Question

I can see why employers might hire hourly employees - you pay employees for the amount of time they spend working. Straightforward. Likewise, salaried exempt makes sense - you pay employees a fixed rate to get a job done, and expect them to spend however long it takes to get it done.

But salaried nonexempt is weird. You don't get to pay the employee less if they spend less time working (barring full days of nonwork), but you still have to pay them extra if they work overtime. What factors would lead an employer to pay for a nonexempt position on a salary basis?

I figure that a salaried nonexempt position is probably more attractive to candidates than an hourly nonexempt position would be, but aside from that, nothing comes to mind.

(I've tagged this [united-states], since that's what I'm most familiar with, but this may as well apply to any country where the notion of "salaried nonexempt" exists.)

Answer 1

Anything that is a benefit to the employee is a benefit to the employer, because it attracts better candidates.

An obvious use of salaried non-exempt is in jobs where hours are relatively fixed and the amount of time spent on the job is important rather than the amount of work done. Examples include receptionists, high end retail, high end phone centre. Police, Fire, EMS are also usually salaried non-exempt.

Being non-exempt is appealing to workers who don't want to be asked to work extra hours, because they know the company will only ask if its absolutely necessary (since it costs them money). Being salaried appeals to workers because they can't have their hours cut whenever the employer feels like it. Better employees in those cirumstances are going to choose positions which are salaried and non-exempt, and may well prefer a fixed salary (and fixed income) over a higher hourly rate where the hours can be cut.

Answer 2

In the United States, the issue of exempt versus non-exempt is determined by the Fair Labor Standards Act and is administered by the US Department of Labor. To complicate the issue further, some states have wage and hour laws, which may add more requirements than the FLSA.

Non-exempt employees are entitled to overtime pay whereas exempt employees are not. Whether a non-exempt employee is paid an hourly rate or an annual salary rate, if they work overtime there will still be a calculation to determine their hourly overtime rate.

Under some contractual obligations, there can be conditions where even exempt employees are paid an overtime rate (e.g. working a Holiday).

There are any number of what ifs as to why a company would salary a non-exempt employee. A negotiated contract may stipulate that everyone is salaried, which could make payroll easier if they are paid say twice a month rather than every two weeks. Being an IT guy, I'll throw out a what if that I've lived with more than once. It's entirely possible the company has an ancient, 30+ year old, ramshackle, Mainframe COBOL, "ERP Solution" (and I use that term loosely) which requires an annual salary to be entered for EVERYONE, exempt or non-exempt.

Answer 3

I think people have missed one large (potential) benefit. There are a lot of positions out there where employees bill clients for their time, directly. The employee is salaried, but each week that employee logs 40 hours of billable time. The client gets billed for each hour at some agreed upon rate.

In a true salaried position, with no concept of overtime, a lot of people are going to try really hard to stay at 40 hours a week (or whatever the minimum in their contract is). They don't see any immediate benefit for working 41 hours or 42 hours. A lot of people won't bother.

In a salaried-nonexempt role, the employees now have motivation to work overtime. If they work 41 hours, they'll see that reflected in their paycheck. If they work 45 hours, they'll see even more in their paycheck. Suddenly, staying an extra 30 minutes each day while traffic thins out seems like a great idea, when it means the equivalent of a ~6% raise.

Even though the employer is paying the employee more, the employer is actually coming out ahead...the billable rate the client pays is significantly more than what the employee gets paid. Most of the additional costs the employer has to pay (office building/health insurance/marketing/hr/etc/etc/etc) are the same regardless of how many hours the employee works. 40 hours a week or 60 hours a week, the office building costs the same amount.

Bill the client @ $150 for those extra hours of work. Pay the employee @ $50 for those extra hours of work.

The difference goes into the pocket of the company.

It can be win-win-win for everyone. Lots of clients want things ASAP, and would rather have the work done sooner, lots of employees appreciate the extra money, and the company gets extra income, brownie points with the client, and a huge plus when recruiting compared to companies that don't offer similar compensation packages.

Answer 4

Attract talent. As an employee I am guaranteed a set amount and if I work more I get paid more.

As an employer if you have a swing load you offer a lower guaranteed salary and explain during load you are expected to work extra hours but get paid more for it.

In sales you get base pay plus commission.

Answer 5

• Employee happiness
• Fairness between salaried and non-salaried workers (in terms of overtime)
• Employees are often far more likely to be flexible and undertake overtime

If you think in pure terms of getting maximum employee hours for your money, it makes little sense: but keeping your employees happy is often under-rated, particularly in the US. In Europe a salaried non-exempt employee (although that exact phrase isn't usually used) is a fairly common thing

Answer 6

The simple answer: because the position doesn't qualify as exempt.

You can (generally) pay anyone a salary instead of paying by the hour (assuming it meets minimum wage, etc). You cannot exempt any "blue collar" workers, or workers who make less than a certain amount (currently $684/week).

If you hire a skilled machinist to be onsite at your prototyping facility all the time, you might well pay him a salary. But under FLSA, he does not qualify as exempt. (Probably. If he is paid more than $107k annually, he might be exemptible anyway.)

Department of Labor fact sheet here.

Answer 7

I know of no compelling reason why an employer would want to do this, other than to simplify things by making everyone salaried. I think it's misguided, since you must still track hours for these folks, and still pay them overtime when required.

According to http://www.shrm.org/templatestools/hrqa/pages/whatisthemeaningofsalaried,nonexemptemployee.aspx there's no real benefit for the employer.

Designating an employee as salaried, nonexempt is appealing, especially for small employers that have mostly exempt employees and do not outsource payroll. However, the designation has no real benefit for an employer. It blurs the line between exempt and nonexempt status and may lead to difficulties.