Classifying employees as exempt or nonexempt might seem easy at first glance. Either they are salaried or they are hourly. Accordingly, they either are eligible to earn overtime for hours worked or they are not.
But it’s not that simple. Nor are the penalties a business can face. Complaints can be made against a business up to two years after an alleged misclassification and resulting lost wages.
Compliance is Key
Such allegations can prove costly, especially if tension in the workplace escalates between the accuser and the business to the level of what could be considered discrimination or harassment. In fact, the U.S. Department of Labor Website’s compliance section states:
“It is a violation to fire or in any other manner discriminate against an employee for filing a complaint or for participating in a legal proceeding under the FLSA.
“Willful violations may be prosecuted criminally and the violator fined up to $10,000. A second conviction may result in imprisonment.”
In addition, any employer found to have willfully violated employee rights, whether exempt or nonexempt from the guidelines outlined in the FLSA, “may be prosecuted criminally and fined up to $10,000,” DOL documents state. “A second conviction may result in imprisonment. Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to civil money penalties of up to $1,100 per violation.”
When Wage and Hour investigators uncover violations, the DOL will often work with that employers to help them become compliant. In addition, they will be required to pay any back wages that may be due to employees.
So what is the standard by which an exempt and nonexempt employee can be measured, and what rules apply to each classification? To be considered exempt, a salaried employee must meet specific salary and duty requirements.
An employee, who is salaried who earns less than $455 per week would be nonexempt and therefore eligible for overtime and other protections under the FLSA. An exempt employee would not be eligible for overtime, but with limited exceptions, must receive their full salary for any week during which they work, Compensation Management News reports. For more information, visit Compensation.BLR.com.
The second portion of the test relates to the duties an employee performs, their job category such as administrative, computer specialists, outside sales and more. For specific exemptions, see the accompanying chart or visit the DOL Website. In some cases, as with computer specialists, otherwise exempt employees may be paid hourly instead as long as they earn $27.63 or more per hour.
In Arizona, there is no legal definition for exempt and nonexempt employees. Everybody is entitled to a minimum wage. However, Arizona does have its own unique minimum wage law. Arizona’s minimum wage is $7.35 per hour and federal minimum wage is $7.25.
While exempt employees are generally not eligible for overtime, they reap other benefits.
“If a person works part of a day and then leaves, you cannot dock them if they are exempt,” explained John Balitis, an employment and labor attorney with Fennemore Craig. “The caveat is that you can dock a salaried, exempt employee’s leave days, so long as it does not result in a loss of compensation during the pay period in which the docking occurs. So, the docking rule for partial day absences is different, depending on whether you are talking about pay or leave.”
Paul W. Barada, a salary and negotiation expert for Monster, agrees. “Exempt employees are generally expected to devote the number of hours necessary to complete their respective tasks, regardless of whether that requires 35 hours per week or 55 hours per week. Their compensation doesn’t change based on actual hours expended. Exempt employees aren’t paid extra for putting in more than 40 hours per week; they’re paid for getting the job done,” Barada wrote in a career advice article published on Monster.com.
If not hours, what then, constitutes an exempt employee’s fulfillment of having completed a day’s work?
“This is an interesting issue that judges and lawyers are talking about, but there is no clear answer,” Balitis said. “Given the proliferation of smart phones and employees checking their email, voice mail and texts while they are at home or in the car on the way to work, there is case law that says that becomes compensable time—so the day has started and exempt/salaried employees have to be paid.”
Balitis said employers, regardless of size, would be well-advised to to purchase a multi-law comprehensive poster for the workplace. If purchased as a subscription from a service, he said, companies generally send updated posters when any of the requirements change.
Commonly Used Exemptions
Commissioned sales employees of retail or service establishments are exempt from overtime if more than half of the employee’s earnings come from commissions and the employee averages at least one and one-half times the minimum wage for each hour worked. You may also wish to review the applicable regulation.
Computer professionals: Section 13(a)(17) of the FLSA provides that certain computer professionals paid at least $27.63 per hour are exempt from the overtime provisions of the FLSA.
Drivers, driver’s helpers, loaders and mechanics are exempt from the overtime pay provisions of the FLSA if employed by a motor carrier, and if the employee’s duties affect the safety of operation of the vehicles in transportation of passengers or property in interstate or foreign commerce. You may also wish to review the applicable regulation.
Farmworkers employed on small farms are exempt from both the minimum wage and overtime pay provisions of the FLSA. You may also wish to review the specific regulation.
Young workers employed on small farms, with parental consent, are also exempt from the child labor provisions of the FLSA. For more information on exemptions from the child labor provisions of the FLSA in agriculture, click the underlined text. Other farmworkers are exempt from the FLSA’s overtime provisions. You may also wish to review the specific regulation.
Salesmen, partsmen and mechanics employed by automobile dealerships are exempt from the overtime pay provisions of the FLSA. You may also wish to review the applicable regulation.
Seasonal and recreational establishments: Employees employed by certain seasonal and recreational establishments are exempt from both the minimum wage and overtime pay provisions of the FLSA. You may also wish to review the applicable regulation.
Executive, administrative, professional and outside sales employees: (as defined in Department of Labor regulations) and who are paid on a salary basis are exempt from both the minimum wage and overtime provisions of the FLSA.
For more information about commonly used exemptions, visit www.dol.gov.
Source: US Department of Labor elaws – Fair Labor Standards Act Advisor
Learn more about nonexempt vs. exempt employees at Compensation.BLR.com.