Conducting an internal audit of your exempt and nonexempt employee classifications is one way to help your organization protect itself from overtime lawsuits. But how should you proceed once you have the audit results?

In a BLR webinar titled "Exempt or Nonexempt? How To Avoid the Misclassification Mistakes You Simply Can't Afford To Make," attorneys with Vedder Price PC offered some advice in this area.

Should you reclassify employees who are now misclassified? Yes, employers have a legal obligation to classify employees correctly and pay them overtime going forward.

How should you communicate any reclassification? If employees are reclassified, three changes will likely occur that will have a direct and noticeable impact on the employee's daily terms of employment:

• Employees will need to accurately record their hours worked.
• Employees will be eligible to receive overtime if they work more than 40 hours in a workweek.
• Employees' compensation may be changed from a salary system to an hourly system, depending on what you decide.

The critical issue is how to communicate these changes to the affected employees in a way that does not create an adverse employee-relations reaction and does not plant the seed that they may have been misclassified and underpaid previously.

The attorneys do not typically recommend informing employees that they are being reclassified from "exempt" to "non-exempt." These are loaded words, and most employees do not understand their significance or meaning.

If you determine employees should be reclassified, should you pay them overtime compensation for prior service?

• The answer to this question is a business decision, not a legal one.
• There are several factors to take into account when making the decision.
• You must make an informed decision based on the likelihood that a claim will be filed, the potential back pay exposure, and the benefit to be derived by paying back pay preemptively.
• Even if you decide to pay back overtime, it may be difficult--if not impossible--to determine the number of overtime hours any of the affected employees actually worked over the previous two to three years unless your organization has maintained time records for these employees.
• Employees would obviously argue that they worked more hours than you estimate, e.g., working at home.

The webinar speakers were Aaron R. Gelb, Esq., a shareholder at Vedder Price PC and a member of the firm's Labor and Employment Practice Area; Joseph K. Mulherin, Esq., a senior associate in the Labor and Employment Practice Area at the firm; and Roy P. Salins, Esq., a senior associate in the Labor and Employment Practice Area of the firm. They can be contacted at agelb@vedderprice.com, jmulherin@vedderprice.com, and rsalins@vedderprice.com, respectively.