The definition of an exempt employee is someone who is paid on a salary basis and whose job description and actual job duties exempts him or her from the Fair Labor Standards Act (FLSA) requirement of receiving overtime. If your employee is classified as exempt status then the laws requiring overtime pay do not apply to that employee. However, you want to make sure you truly understand exempt vs non-exempt classification and all of your employees are correctly classified or your business could face audits, fines, and penalties from the government and/or claims against your business from employees.
Are You Classifying Your Exempt vs Non-Exempt Employees Correctly?
Being salaried is not the end-all deciding factor when looking at exempt vs non-exempt status of an employee. There are other criteria to consider. There are exemptions for certain executive, administrative, professional, computer professional, and outside sales employees that may allow an employee to qualify for exempt status. Laid out below are the different requirements for each type of eligible employee stated by the U.S. Department of Labor Fact Sheet #17A.
*Note added by DOL to Fact Sheet #17A in January 2018:
“The Department of Labor is undertaking rulemaking to revise the regulations located at 29 C.F.R. part 541, which govern the exemption of executive, administrative, and professional employees from the Fair Labor Standards Act’s minimum wage and overtime pay requirements. Until the Department issues its final rule, it will enforce the part 541 regulations in effect on November 30, 2016, including the $455 per week standard salary level. These regulations are available at: https://www.dol.gov/whd/overtime/regulations.pdf”
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Other Exempt vs Non-Exempt Considerations
Highly Compensated Employees
Highly compensated employees performing office or non-manual work and paid total annual salary or fee of $100,000 or more are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee identified in the standard tests for exemption shown in the above graphic.
Blue Collar Workers
The exemptions do not apply to manual laborers or other “blue collar” workers who perform work involving repetitive operations with their hands, physical skill and energy. FLSA-covered, non-management employees in production, maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers are entitled to minimum wage and overtime premium pay under the FLSA, and are not exempt no matter how highly paid they might be.
Police, Firefighters, Paramedics & Other First Responders
The exemptions also do not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, firefighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work.
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This law provides minimum standards that can be exceeded but not waived or reduced. As an employer you should keep in mind Federal, state, and municipal laws and regulations may be different and you want to make sure your business is in compliance with all current laws.
For more information on Exempt vs Non-Exempt Classification and practical application, see posts in our ongoing HR Scenario series by our National HR Client Service Manager, Kim Schaff, SHRM-SCP, PHR: Is This An Exempt Employee? and Reductions to an Exempt Employee’s Salary.
What Happens If I Misclassified?
Misclassification can lead to labor audits among other headaches. You could receive a claim from an employee or former employee who feels they were not adequately paid for overtime hours worked. If this occurs your business could be forced to pay fines as well as pay back wages owed to current and/or former employees regardless of who filed the claim.
That is why it is so important that you fully understand the differences between exempt vs non-exempt classification and only classify an employee as exempt if they meet all law requirements. Even if your employee’s job title matches one of the above categories, they must meet all requirements or they are technically non-exempt.
If you know an employee is non-exempt you want to make sure all their hours are being tracked and they are paid correctly for any overtime hours. Most states require 1.5x their hourly pay for any overtime hours.
The consequences can be harsh because taxes are based off income so if your employee is not being paid enough that means the government is not being paid enough through those taxes and a business can be swiftly penalized for this offense.
How Can a PEO Help?
Employers Resource been helping employers classify their employees correctly for more than 30 years. We help not only with employee classification compliance, but compliance in all areas related to having employees. We are here to make the lives of employers easier. Period.
If you’re looking for help with exempt vs non-exempt employee classification, or any other issues with having employees, get in touch with us today. We live to help small business owners fulfill the American Dream of Entrepreneurship.