Exempt or Non-Exempt? That is the Question.
Okay okay. Sorry to go all Shakespeare on you, but sometimes we have to spice up compensation topics to get your attention. Back to matters more important.
Compensation is not just a word we throw around to make us look smart. It’s serious business.
What do you think of when we say, “Compensation?” Most people think it is just a fancy word for what’s on your paycheck. But it’s so much more—including whether jobs are classified as exempt or non-exempt
If you are incorrectly classifying a non-exempt employee as exempt, it could result in a lawsuit. Lawsuits mean money and lots of it.
I bet we got your attention now.
In recent years, there has been a great deal of litigation related to misclassification of positions. Many employers were fined and were required to pay back pay to employees that were incorrectly categorized. Not good.
Knowing the criteria to qualify an employee as exempt or non-exempt could save you and your company the time and money of a lengthy lawsuit.
So that’s what we want to help you with today.
The Fair Labor Standards Act (FLSA) has issued a nifty series of questions you can ask to find out if the employee is exempt or non-exempt.
Here’s what it all comes down to: The difference between an exempt and non-exempt employee is how they are compensated. An exempt employee is paid to get the job done regardless of how many hours they work. They are not required to take breaks. Non-exempt employees are entitled to overtime pay at a rate of 1.5 times their hourly rate, for time worked over 40 hours in a work week. They are also entitled to take meal and rest breaks.
Seems simple, right?
If only! There is a list of standards that make this issue of exempt or non-exempt much more complex than it appears on the surface. Many employers are unknowingly violating many of the rules set by the FLSA.
Are you guilty of these mistakes? If you got a sheepish grin on your face as you read the above or if you had to quickly minimize your browser so your employees wouldn’t read over your shoulder, then you need to keep reading. (Even if you didn’t have the above reactions, you should probably keep reading, too. It’ll be worth it).
Now, there are three main tests you can use to see if your employees should be classified as exempt or non-exempt.
Here are the three tests:
Let’s break them down.
The Salary Test asks how much the employee is paid. If any employee makes less than $23,000 per year or $455 a week they are non-exempt. If an employee makes more than that, they may be exempt but only if they meet the second or third tests.
The Salary Basis Test asks if an employee is paid on a salary basis or an hourly or fee basis. If the employee regularly receives a prearranged amount on each payment period, they are paid on a salary basis. The predetermined amount cannot be reduced in any week that the employee does any work.
Don’t freak out, but the Duties Test is the most complicated of the three tests. This test states that an employee’s duties meet the parameters of the executive, professional, administrative, computer and outside sales exemptions.
See that’s not so bad is it? To read more about these exemptions, check out this resource on the Department of Labor website.
Here’s the reality: If the person responsible for classifying employees or writing position descriptions does not fully understand the criteria above, your company could be making some costly mistakes.
In a time where managers and owners are spending more time than ever on the basic functions of running the business, these tests can seem very complicated and difficult to apply.
Many times when a company is not compliant on these issues, they are completely unaware until they are on the receiving end of a lawsuit. To avoid the financial penalties, bad publicity, and enormous headache that come with these mistakes, every employer should do a thorough review of their exemption policies.
If you broke out into a full sweat while reading this blog, you may need some help. No worries, Integrity HR is here for you! Integrity HR offers a variety of compensation consulting services to help you maximize your team’s performance and make sure you avoid those nasty lawsuits.
Are you wondering if your company could be a risk due to insufficient HR policies and procedures? Are concerned that your HR isn’t running as smoothly and effectively as it should be? Worry no more!
You can take our online HR Compliance Review in less than 10 minutes and instantly receive your HR Risk score and HR Effectiveness rating.
Go ahead, click below and get one step closer to reducing your risk, increasing productivity, and gaining a peace of mind.
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