Employee exemption status can be confusing. If used incorrectly, employers can face a variety of consequences including costly penalties under the Fair Labor Standards Act (FLSA) as well as applicable state and local laws and regulations.
More often than not its the disgruntled employees (current and past ones), who will decide to call your pay practices into question when they think they should have received overtime pay. And if you have shortchanged them, you will be responsible for repaying those back wages and overtime pay!
Employers with just one employee must follow the FLSA guidelines.
This article will help simplify and demystify the various classifications and help keep employers out of hot water!
Remember, all the information in this blog post is published in good faith and for general information purpose only. I am not an attorney, nor do I provide legal advice. The information provided is my personal opinion and not that of any organization, business, company, agency or other individuals. The author is not liable for any losses or damages related to actions or failure to act related to the content of this article. If you need specific legal advice, consult with an attorney who specializes in your subject matter. Any action you take upon the information you find on this website (www.hrraw.com), is strictly at your own risk.
Penny Horton | November 11, 2018
In 1938 The Department of Labor (DOL) established The Fair Labor Standards Act (FLSA) which is a United States labor law that created the right to a minimum wage and overtime pay, outlined recordkeeping requirements, and enacted youth employment standards affecting employees in the private sector and in federal, state, and local governments. Employers with just one employee must comply.
Despite popular belief, you can’t always use exempt and non-exempt interchangeably with salary and hourly. And, the exempt and non-exempt status not only has to do with whether or not someone is eligible for overtime pay, but it also includes exemptions from minimum wages.
Let’s define some terms.
Non-exempt
In the United States, a non-exempt employee is an employee that 1) must be paid at least the federal minimum wage for all hours worked during a workweek up to 40 hours, and 2) must be paid at a rate of pay that is equal to one-half times the regular rate of pay for all hours worked over 40 during a workweek. While this includes hourly paid employees, it can also include salaried employees too.
Exempt
In the United States, an exempt employee is an employee that is granted an exemption to both the minimum wage and overtime pay laws of the FLSA because they are either 1) a bona fide executive, 2) an administrative, 3) a professional, 4) an outside sales, and/or 5) a qualified computer employee. Although you must be careful, as exemption status is based on the duties of the position and not these specific job titles.
The DOL offers detailed explanations of the exemption information for each of these positions which can be found here:
- Executive employee exemption fact sheet
- Administrative employee exemption fact sheet
- Professional employee exemption fact sheet
- Outside sales employee exemption fact sheet
- Computer-related employee exemption fact sheet
Hourly
An hourly employee is an employee that is paid an hourly wage for their services based on the hours they worked during a pay period. While most hourly employees do receive overtime pay, if the employee is exempt under FLSA guidelines, then overtime would not be required regardless of the fact that the employee is being paid hourly.
Salary
A salaried employee is an employee that is paid a predetermined amount of compensation each pay period, regardless of the number of hours or days the employee worked (although there are a few allowed exceptions in which the employer can make deductions that can be found here). If a salaried employee is non-exempt under FLSA guidelines, then despite the fact that he/she is being paid a predetermined amount, that employee would also need to receive overtime pay.
How Do I Decide?
To properly determine the exemption status of a position an employer should conduct an analysis of each position to determine:
- Primary job duties
- The rate of pay and total annual compensation
- Decision-making authority
- Required education level
- Location of the work
- Level of responsibility
- Amount of discretionary and independent judgment with respect to matters of significance
Where Can I Get Additional Help?
The DOL offers a multitude of web-based resources to ensure compliance with the FLSA that can be found on the Wage and Hour Division (WHD) page.
Additionally, the DOL has designed specific assistance for new and small businesses to help ensure with employee wages, record retention, employment of minors, providing family or medical leave to eligible workers and notifying employees of their rights in the workplace. They have created a New and Small Business Resource Page and a Labor Standards Information for New and Small Businesses publication for your reference.
Reality Check
However, if you aren’t completely confident about the status and pay practices of your employees, would like a confidential review of your positions or just need ensure your company is protected, Who’s Your HR? can help!
Who’s Your HR? is available to assist you with HR consulting, contract or project work. Please review the Solutions and Service page or find my contact information in the menu to the left of this article.
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