Highlights
- FLSA status categorizes employees as either exempt or non-exempt, determining if they are eligible for overtime pay.
- To be correctly classified, employees must meet specific criteria related to salary and specific job duties.
- Employers Resource helps small businesses navigate HR compliance. Our dedicated team of experts guides you through complex regulations, ensuring your business stays protected. Learn how we can help!
Understanding FLSA status is crucial for businesses of all sizes. Correctly classifying employees as either exempt or non-exempt helps your business stay compliant and avoids potential legal issues, fines, or penalties.
In this guide, we’ll delve into the ins and outs of FLSA status, providing essential information for your HR team.
Let’s get started!
What Is FLSA Status?
The Fair Labor Standards Act (FLSA) is a U.S. federal law that regulates various aspects of employment, including:
- Minimum wage
- Overtime pay
- Recordkeeping
- Youth employment standards
A key part of HR compliance is understanding employee classification. The FLSA status categorizes employees as either exempt or non-exempt. This determines whether an employee receives overtime pay or not.
As an employer, you want to make sure that all of your employees are correctly classified. Misclassifying workers can have serious legal and financial consequences for your business, including back wages, penalties, and lawsuits.
Exempt vs Non-Exempt Employees
What Is an Exempt Employee?
Exempt employees are typically salaried workers who hold positions of significant responsibility and authority. They are generally exempt from federal minimum wage and overtime pay requirements.
To qualify as exempt, employees must meet specific salary thresholds and job duties tests outlined by the FLSA.
What Is a Non-Exempt Employee?
Non-exempt employees are usually hourly workers who do not meet the criteria to be classified as exempt. These employees get paid minimum wage and overtime for any hours they work over 40 hours a week.
As an employer of non-exempt employees, you must accurately track their hours worked and calculate overtime pay accordingly.
How to Classify Exempt vs. Non-Exempt Employees Correctly
Being salaried is not the end-all deciding factor when looking at the exempt versus non-exempt status of an employee.
There are other criteria to consider, such as:
Highly Compensated Employees
Highly compensated employees performing office or non-manual work and earning a specific annual salary threshold are exempt from the FLSA’s overtime pay requirements. To qualify, these employees must also regularly perform at least one of the duties of an exempt executive, administrative, or professional (EAP) employee.
The Department of Labor’s final rule, which took effect on July 1, 2024, increased the salary threshold for exempt employees.
Blue Collar Workers
The exemptions don’t 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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Employee Misclassification: What Are the Risks?
Misclassification can lead to labor audits and significant financial penalties.
If an employee files a wage and hour claim, your business could be liable for back wages, overtime pay, and fines and penalties from government agencies.
That’s why it’s so important to understand the difference between exempt versus non-exempt classification. Just because someone has a certain job title doesn’t automatically mean they’re exempt. They must meet specific requirements, like earning a certain salary and performing certain tasks.
If an employee is non-exempt, you must track their hours carefully. They should be paid overtime at a rate of 1.5 times their regular hourly rate for any hours worked over 40 in a workweek.
Misclassifying employees can have serious consequences. Not only could you face legal penalties and backpay obligations, but it could also lead to tax issues. If employees are incorrectly classified as independent contractors, your business may be liable for unpaid payroll taxes, including Social Security, Medicare, and federal and state income taxes.
How Can a PEO Help?
Regularly reviewing employee classification is crucial to ensure your business always stays compliant. However, keeping up with constantly evolving regulations might be a real challenge.
Employers Resource has been helping small businesses and entrepreneurs classify their employees correctly for over 30 years. As a Professional Employer Organization (PEO), we specialize in HR compliance, as well as payroll and taxes, employee benefits, and workplace safety.
Need help with exempt vs non-exempt employee classification? Get in touch with us today for expert advice!
