The Fair Labor Standards Act (FLSA) establishes guidelines for minimum wage, overtime pay, and employee classifications in the United States. Properly classifying employees under the FLSA is crucial for employers to ensure compliance with wage and hour laws. This article aims to provide an overview of three common FLSA classifications: exempt, non-exempt, and salaried non-exempt. We will also highlight common mistakes employers make with these classifications and provide examples. Be sure to see the link to US Department of Labor Fact Sheets at the bottom of this article.
Exempt employees are not eligible for overtime pay and are exempt from certain provisions of the FLSA. To qualify for exempt status, employees must meet specific criteria related to their job duties and salary. Common exempt job categories include executive, administrative, professional, and outside sales positions.
Examples of exempt employees include:
Executive: A store manager responsible for supervising employees, making important business decisions, and managing daily operations.
Administrative: An HR coordinator responsible for managing employee benefits, handling personnel records, and ensuring compliance with employment laws.
Professional: A licensed architect providing architectural services independently or as part of an architectural firm.
Improper Job Duties: Misclassifying employees by assuming exempt status without carefully evaluating their actual job duties.
Salary Basis Test: Failing to ensure exempt employees receive a salary that meets the FLSA's minimum salary requirement.
Misinterpreting Exemptions: Misunderstanding the specific criteria for each exemption category and applying them incorrectly.
Non-exempt employees are entitled to receive overtime pay for hours worked beyond 40 hours in a workweek. They must be paid at least the federal or state minimum wage for all hours worked. Of course some jurisdictions maintain different overtime limits, such as over 8 hours per day. Employers should be aware of overtime limits in states and locales in which they operate.
Examples of non-exempt employees include:
Hourly Employees: Workers paid on an hourly basis, such as customer service representatives or retail sales associates.
Non-Exempt Salaried Employees: Employees paid a salary but still eligible for overtime pay, often referred to as salaried non-exempt employees.
Part-Time Employees: Individuals working less than full-time hours who are eligible for overtime if they exceed 40 hours in a workweek.
Misclassifying Salaried Employees: Incorrectly assuming that salaried employees are automatically exempt from overtime pay.
Off-the-Clock Work: Failing to track and compensate non-exempt employees for work performed outside regular working hours, such as responding to emails or taking work-related calls.
Improper Deductions: Making unauthorized deductions from non-exempt employees' wages, which may violate FLSA regulations.
Salaried Non-Exempt Employees:
Salaried non-exempt employees receive a fixed salary but are eligible for overtime pay when they work more than 40 hours in a workweek. These employees must be paid overtime at a rate of 1.5 times their regular hourly rate.
Misclassifying as Exempt: Erroneously assuming that salaried employees are exempt from overtime pay without considering the specific job duties and FLSA criteria.
Failure to Track Overtime: Neglecting to accurately record and compensate salaried non-exempt employees for overtime hours worked.
Improper Calculations: Mishandling the calculation of overtime pay for salaried non-exempt employees.