Misclassified Employee as "Exempt" for 2 Years - Now what?

I am a small business owner, and recently conducted an audit of my "exempt" staff. It appears that one of my employees has been incorrectly misclassified, and should have been receiving OT for the past two years.

I want to rectify this situation by paying him retroactively, but we did not keep timecards, so we'll need to estimate. Most weeks the employee worked 40 hours or less, but occasionally he worked an hour or two over 40. I've met with him, and we have agreed that the easiest, fairest, and most practical way to reimburse him is to "credit" him with one hour of OT (50% of his hourly salary) per week since he's been hired.

Calculating the amount is no problem, but what verbiage should I put in an explanatory memo for his file, to be signed by both of us? I don't want to admit guilt in writing, but do want to indicate that he'll be classified as "NonExempt" from now on, and that in case he WAS misclassified, in good faith we've paid him retroactively. How?

Thanks!

There is nothing wrong in correcting an inadvertent error, which was purely unintentional and was probably on account of incorrect judgment. This is not a MISTAKE but an INADVERTENT ERROR.

You can overcome the situation by rectifying the error and paying the dues , if any !!

You need to involve a lawyer in this matter. There are too many complications that can arrise. You are fortunate that the employee is working with you, but the investment in a good lawyer will save you money down the road.

If both of you agree to call it a " once and done bonus, " the problem will have disappeared. Also, changes in curcumstance dictate that you should change his status.
I'm glad to see that both of you could sit down and come to a friendly settlement over this issue.
He sounds like a good person, one that you want to keep around for a long, long time.

Your concern is due to the distinct difference between liability and culpability. You were not involved and immediately admitted the shortage. It was a passive clerical error and nobody in your firm is culpable (guilty) of any wrongdoing. Your position is only liable (responsible) for simple restitution and there is no need to involve anyone else.

In addition to the comments above, this employee is very fortunate to be with your firm. Some companies would have reclassified the file and let it go. Others would have arbitrarily augmented the next check and blown off any inquiries as a one time adjustment. Still, some would draft the same settlement and the employee's choice would be to take it or leave it. What you have done would not be the first recommendation of many lawyers, especially the ones with Enron.

This "Organizational Review and Reconciliation" should be a stand alone file insert and only needs to cite the 1.25% restitution for casual overtime, to date, and that any future overtime will be paid as accrued. Another detail here, of how this came about, would be both redundant and pointless.

Two reasonable people have negotiated an equitable and amicable solution to what could have been a subjective and bitter dispute. Both of you should be commended. Good Luck.

You would want to say that you are paying him retroactive overtime as an accomodation because he might be classified as a non-exempt employee, that neither you nor he have records of how much overtime he may have worked, and therefore as an accommodation you are estimating the overtime at 1 hour a week, an estimate which both sides believe is fair. I would also ask him to sign a release of claims for prior overtime owed.

Good luck,
Dana (attorney)