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Employers should take their time filling out new-hire paperwork, especially when it comes to classifying employees. Your employees are typically going to fit into one of two categories, an exempt employee or a non-exempt employee. This employee classification determines all aspects related to the payment of wages for each individual that are necessary to remain in compliance with wage and hour laws.
If an employee is exempt, it means he or she is typically paid a fixed salary, not one based on the quality or quantity of work. The term “exempt” means an employee is exempt from the minimum wage and overtime provisions of the law. Exempt employees are often those in supervisory or management positions, but there are other applicable FLSA exemptions depending on the industry and/or specific job duties. Exempt employees are not entitled to overtime but also generally cannot be paid less than the agreed upon salary. Employees exempt under the “white collar exemptions” must meet the following FLSA exempt test:
- Perform exempt duties (as established for each exemption)
- Paid on a salary basis
- Paid the full, agreed upon salary for any workweek in which they perform any work (with limited exceptions)
- Earn at least $455 per week
Non-exempt employees are entitled to overtime pursuant to the FLSA. Employers are required to pay time and a half the non-exempt employee’s regular rate of pay when they work more than 40 hours in a given workweek. Non-exempt employees must also earn at least minimum wage for all hours worked. Some states have specific minimum cash wages for tipped employees (if an employee’s tips combined with cash wage does not equal the applicable minimum wage, the employer must make up the difference). You can pay non-exempt employees by the hour, on a piece-rate basis, by the day, with a commission structure, any combination of these, or even on a salary basis. Regardless of the method of pay, the requirements for paying exempt employees are:
- Keep track of all the hours worked
- Pay at least minimum wage
- Pay overtime when applicable
Misclassification of employees as exempt when they do not meet the qualifications can be a very costly mistake. In a typical wage and hour lawsuit, a non-prevailing employer will end up paying back wages plus damages equal to the amount of the back wages, fees to an attorney to represent them, as well as the employees’ attorneys’ fees. In 2016, the U.S. Department of Labor collected more than $266 million in back wages for more than 280,000 workers who hadn’t been paid in compliance with the Fair Labor Standards Act (FLSA). On average, each employee received $930 in back wages. For some, like wait staff, that’s the equivalent of four paychecks. Can you imagine not being paid for a month’s worth of work? The most common violators were employers in the fields of construction, retail, and food services.
If you have questions about how to classify employees or an exempt employee vs. a non-exempt employee, FrankCrum’s HR experts can walk you through any wage or hour issues. For PEO advice on hiring and retaining top talent, be sure to download our free resource, The Employer’s Playbook for Avoiding Hiring Mistakes.
