Do You Have Exempt or Non-exempt Employees?
It may be hard to fathom that in 2015, the U.S. Department of Labor’s Wage and Hour Division found violations of the Fair Labor Standards Act (FLSA) in 79% of its investigations!
One could see that violations would be anticipated in the course of audits in response to employee complaints. However, the Wage and Hour Division routinely sees violations when it simply selects a company to audit. And in many instances, the employer wasn’t even aware of the violations.
One of the most common misunderstandings is that salaried employees don’t have to be paid overtime. But the eligibility for overtime isn’t determined by a label like “salaried” or “hourly.” Similarly, another big mistake for error for employers is not remembering to include all wages when calculating employee overtime pay.
Misused and Misunderstood Labels
Employers will many times label their workers as salaried or hourly—thinking that “salaried” means the same things as exempt from overtime—and “hourly” is the classification or label given to those workers who do get overtime. But the FLSA states that the correct terms are exempt and non-exempt. This means that the categories to focus on are exempt from overtime and entitled to overtime. This proper terminology is critical because either category of employee can be paid a salary.
Salaried employees could meet the criteria for a specific exemption—but simply paying a salary doesn’t make an employee exempt and automatically remove an employer’s obligation for overtime. You see the issue isn’t how the employee is paid (salary or hourly), but rather whether the employee meets an overtime exemption allowed by law. To qualify for some exemptions, the employee may have to receive a specified method of pay, like a fixed salary. But that’s just one of the exemption criteria and not the sole ultimate deciding factor.
Wages encompasses all compensation for services, and aren’t limited to hourly rates, weekly salaries, or cash. Plus, non-cash gifts and bonuses can also be wages. While the minimum wage is thought of as an hourly rate, employers are allowed to pay using any one or more of these methods:
- Day rates
- Job rates
- Per mile rates
Employers can use other methods or a combination, and it can be with or without a base salary or an hourly rate. Alternative way to compensate employees typically used to motivated employee productivity, like providing sales commissions for a company’s field staff to form an immediate and direct connection between sales success and employee compensation. The commission must be added to any other compensation and that total divided by the hours worked in order to arrive at an average hourly rate. Overtime is to be calculated using that rate. If an employee doesn’t consider commission or other types of compensation as wages, it would end up with an inaccurate calculation and a failure to pay all of the overtime owed.
An employer can elect the way in which to compensate non-exempt employees, provided that the method gives the workers at least minimum wage, and their overtime is calculated properly. Exempt employees might be given a specific form of compensation that is required to qualify for an exemption, like a fixed weekly salary.
Employers need to must clearly understand the claimed exemption requirements prior to claiming that employees are exempt from overtime. Each of the exemption has certain criteria, and the form of payment is only part of the equation, so when workers don’t satisfy all of the requirements for an exemption, the DOL Wage and Hour Division says that they must be paid overtime.
Andrew Rogerson is happy to help you with questions about your business, and is the expert you need to assist with the purchase or sale of a business in the Sacramento area. To get information about business structure changes and to learn more about business opportunities in and around Sac, please visit our websiteServices and choose from the drop down menu the information you’d like.
For more immediate help, please send an email to Andrew or call him at (916) 570-2674.