As soon as a business or non-profit hires its first employee, it must comply with the Fair Labor Standards Act (FLSA). This federal statute is widely known because it includes the minimum wage and overtime requirements we are all accustomed to. Still, there are many common misconceptions about this law. Businesses and organizations should take the time to ensure that they are complying with FLSA guidelines and keep careful records showing as much.
Exempt vs. Non-exempt
An employee who is classified as "nonexempt" must be paid minimum wage and must receive overtime pay for all hours worked beyond forty (40) hours per week. Individuals who are properly classified as “exempt” are not guaranteed minimum wage or overtime pay. Employers must have a solid understanding of what makes an employee exempt to avoid denying the right to minimum wage and overtime pay. Mistakes can lead to huge financial consequences for their business because FLSA penalties can add up fast.
How to Classify Employees
Despite popular belief, it is not the case that all salaried employees are exempt. In fact, employers must look at several different factors to determine the appropriate classification.
Employers should start by looking at the primary job duties for a particular position. Exempt employees fall into one of three categories. An employee in management who supervises two or more people and is responsible for hiring and firing is considered an executive. An employee who is primarily responsible for the support of the business works in an administrative role. These positions involve much more than simple clerical work and include human resource, public relations, and accounting roles. Professionals perform jobs that require advanced education and training, such as lawyers, physicians, teachers, and architects.
Executive, administrative, and professional employees must meet several additional requirements in order to be exempt. They generally must receive a salary rather than hourly pay. Employers must pay exempt employees a minimum of $455 per week. An executive, administrative, or professional who receives less than this amount is considered nonexempt and is entitled to receive overtime pay.
The Consequences of Mis-Classification
Sometimes employers will mistakenly mis-classify employees. By treating a nonexempt employee as an exempt employee, they may not properly record and compensate minimum wage and overtime hours. These employees may file FLSA overtime claims with the U.S. Department of Labor. After the claims are investigated, the employer may be subject to severe penalties and backpay.
Employers should take great care to avoid this situation. They should develop clear job descriptions that identify the job duties for all positions. They should work with an experienced employment attorney to ensure that they properly classify their employees as exempt or nonexempt. Finally, they should track and record all work hours to ensure that employees receive the full minimum wage and overtime pay they are entitled to receive.