You carefully track all hours worked by. But do you know how many hours your work? That can become a problem if you misclassify an employee as exempt when the person should have been hourly.
If a court or labor department orders you to cough up back pay and overtime, you won't know how many hours the person worked, and a court may accept the employee's inflated estimate.
Nothing in the law prevents you from requiring all employees (exempt and nonexempt) to record their hours by punching a time clock or maintaining a time sheet. That way, you'll have time records if you need them. Just make sure you don't base exempt employees' compensation on those hours or you'll jeopardize their exempt status.
Recent case: Philip Price, who has a bachelor's degree in IT systems, worked as a Sprint customer service rep, taking phone inquiries about computer problems. Sometimes, he acted as a go-between with customers and higher-level Sprint technicians. He also helped train new hires and did some limited scheduling. Sprint classified him as exempt under the computer professional exemption or the administrative exemption.
The trouble began when Sprint ran an internal audit of its Fair Labor Standards Act () compliance and concluded that some of the customer service reps, including Price, were performing a mix of exempt and nonexempt work. Sprint reclassified Price as nonexempt and gave him a check for $8,200 based on its guess of his overtime hours.
Price balked at the offer, estimating that he often worked four to six overtime hours per day. He filed a FLSA lawsuit to recoup the unpaid overtime and won. The court concluded it was Sprint's responsibility to prove how many hours Price had worked, even though it had classified him as exempt. If Sprint couldn't, the court could use Price's estimates if he'd been misclassified. (Hunter v. Sprint, No. 04-0376, DC DC, 2006)
Final tip: Consider implementing ways to track how many hours exempt employees work, just in case they lose their exempt status.