Insights on Excellence | "Insights on Excellence" Archive

Tracking the work of exempt-status employees

by Stephen Hawley Martin
for Virginia Business
February 20, 2007

Lately in this column we've been discussing the value of workforce management technology (WMT) in providing information that can be invaluable when making business decisions. But what about decisions that relate to activities performed by exempt employees whose time and attendance data may not be entered into a WMT system?

Exempt employees are those who, because of their duties and responsibilities, are exempt from the overtime provisions of the Fair Labor Standards Act (FLSA). Exempt employees are expected by most organizations to work whatever hours are necessary to accomplish the goals of their positions. Unlike nonexempt, or hourly, workers, exempt employees usually have some flexibility in their schedules and can come and go as necessary to accomplish their work. But employers cannot simply label a job as exempt to avoid paying overtime.

Let's say a number of workers on your staff meet the requirements to be exempt employees. Although salaried employees are exempt from overtime, you still may want to track their activities for reporting or cost accounting purposes, or to provide information that will be used to bill clients for services rendered. Certain service sectors have strict guidelines as to the amount of staff required relative to the number of "customers" - i.e. patients, residents, clients. For them, tracking exempt time is a critical operational need. In many situations, exempt employees should also be included in time and attendance data so that the figures management uses to make decisions will be representative of the whole operation.

But this can be problematic. Exempt employees aren't being paid by the hour and are often considered "professional" workers, so they typically don't punch in and out at a time clock or report their actual arrival and departure times. They are, of course, expected to work a full week, usually 40 hours, but technically their pay cannot be reduced if they leave early every now and then or don't work a full 40-hour week. Their pay is based on accomplishing the goals they are required to meet. If it takes more than 40 hours to get the job done, they are expected to put in the extra hours, but their pay does not change. Because actual time worked and pay are not linked, companies have historically not closely tracked the time of exempt employees.

But times have changed. Technology has introduced data integration into management's tool kit. Labor management systems now deposit information in corporate data warehouses and parse it into reports that are used to make management decisions Omitting exempt labor data leads to an incomplete picture of labor activity. The old principle that recording exempt employee time equates to tracking time for hourly employees isn't true in today's info-centric business environment. So long as the data isn't used to compute salaries or earnings on an hour-for-hour basis, companies are safe to collect the exempt employee information.

There are many ways to record those employees' activity. Some companies are satisfied with a manual process that allows exempt employees to report their time on a weekly basis. Some require salaried personnel to allocate their time to cost centers, projects or customers. These approaches provide some sense of the cost of exempt labor activity, but they fail to provide real time data and are not as accurate and verifiable as information for hourly employees.

Here are things to consider if you plan to track exempt employee time in a new labor management or time-and-attendance system. For consistency and reporting purposes, it may be preferable to have exempt employee hours come from the same system as hourly employees. A problem may arise, however, because exempt employees may work fewer or more than 40 hours, but their pay does not change accordingly. In other words, the actual hours of salaried workers may vary each week, but the employees' earnings do not. But existing software systems can be configured to limit the number of hours passed to payroll for an exempt employee, thus eliminating the potential problem that overtime pay might be automatically generated. Another potential problem is that the systems sometimes are not equipped to guarantee the weekly minimum hours to support the salary payment. That situation might result in an employee being underpaid. The solution is to include exempt-hour tracking requirements in the technical specifications of an RFP (request for proposal) when selecting a system. Before you make your selection, be sure to verify it can support the payroll system side of the process.

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Stephen Hawley Martin is a former principal of The Martin Agency in Richmond and the author of more than half a dozen books including his newest, Lean Enterprise Leader: How to Get Things Done Without Doing It All Yourself. He is editor and publisher of The Oaklea Press, a book publishing business dedicated primarily to helping business executives increase productivity.