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Payroll & Taxes

Top 2 HR Mistakes that Business Owners Make

Christine Batten, PHR
by Christine Batten, PHR on March 4, 2015

Top 2 HR Mistakes that Business Owners MakeEmployers, while usually very well-intentioned, tend to make two HR mistakes - both of which are related to money and can result in the loss of it if the law is not followed. What constitutes fair and proper payment of wages is dictated by state and federal law, so it’s important for business owners to avoid mistakes related to pay that can result in legal action.

Read on for some helpful information about the 2 most common HR mistakes, so you can avoid them in your business.

Classifications (Exempt vs. Non-Exempt)

All employees are either exempt or non-exempt. It is important to properly classify each employee in order to ensure compliance with wage and hour laws.

Non-exempt employees are those who, while paid in a variety of methods (hourly, daily, piece rate, commissions, etc.), are entitled to certain provisions under the law. Non-exempt employees:

  1. Must make at least minimum wage for all hours worked, and
  2. Are entitled to overtime if they work more than 40 hours in a workweek.

Exempt employees are generally paid on a salary basis and their pay does not fluctuate based on the number of hours they work (or any other factors); they are paid for the job they do. And while an exempt employee generally cannot have their pay reduced for working fewer hours (with limited exceptions), they also are not entitled to overtime pay for working more.

Business owners sometimes assume that if they pay someone a “salary” they do not have to pay them overtime. A salary is simply a method of pay and does not automatically mean an employee is exempt (from the overtime provisions of the law). The U.S. Department of Labor has established certain criteria which must be met in order for an employee to be considered exempt. Those positions generally include executive, administrative, learned professional, computer professional, creative professional, and outside sales.

Always consult with a HR professional for guidance on proper classifications of your employees to avoid these costly mistakes.

Deductions From Pay

The fundamental purpose of wage and hour laws is to protect employees’ wages and ensure they receive all the wages to which they are entitled under the law. As such, (other than mandatory deductions such as taxes), employers are limited when making deductions from employees’ pay.

Even when an employer feels an employee “owes” the company money for something (damaging company property, not returning uniforms, an error that resulted in a loss to the company, etc.) it does not mean that a deduction from pay is the appropriate remedy. While it may be convenient to simply deduct it from their pay, employers must be careful when taking money the employee has earned. Important things to consider:

  1. Deductions other than those mandated by law can never take the employee’s wages below minimum wage. (This means if the employee only makes minimum wage, NO additional deductions can be made)
  2. In most states, it is required that the employer have written authorization from the employee prior to making any such deductions
  3. Some states prohibit deductions altogether for certain reasons (regardless of whether or not the employee would authorize it)

Again, wage and hour laws provide protections to employees. So, while these laws may not seem “fair”, the logic to limiting deductions from pay is that the employer has control of the employees’ money and it is not appropriate to allow the employer to be the judge and jury and decide what an employee “owes” them and simply keep it.

A Business Owner's Guide to HR


Christine Batten, PHR
Christine Batten, PHR

Christine has over 20 years of HR related experience with a background in labor and employment law.