Determining employee exemption is a constant HR challenge
The key difference between exempt and nonexempt employees is that exempt employees are not eligible to receive overtime pay. On the other hand, non-exempt workers are eligible to receive overtime pay. Nonexempt employees who do not receive minimum wage or rightful overtime pay can file a claim with the Department of Labor (DOL) because the Fair Labor Standards Act (FLSA) protects the wage rights of employees. Typically, these claims are identified in back wages that employers are forced to pay back to employees.
Employers can use the following tests to identify whether their employee is exempt or non-exempt.
Salary Basis Test
Employers may use a “salary test” to determine whether an employee is exempt or not. Non-exempt employees are generally paid at an hourly rate. Exempt employees are generally paid a salary. However, employees that are paid a salary that is less than $23,660 per year, or $455 per week, are considered nonexempt.
Job Role or “Duty Test”
Positions with certain duties are excluded from FLSA coverage. The DOL designates positions with the following duties as exempt:
- Professional (whether learned, creative, or a computer professional)
- Outside sales
Exempt professional and administrative job positions may include lawyers, teachers, accounting specialists, etc.
Employers have to go one step further when determining whether job roles or duties, fall within the exempt status. Some helpful criteria when assessing if your employee’s role makes them exempt are:
- If your employee has supervisory or management duties
- If the employee has the authority to hire, fire, and assign tasks
Positions that require employees to use independent judgment when dealing with important employment decisions are considered exempt and do not have rights under the FLSA. However, other federal labor laws (such as the FMLA and EEOC laws) protect exempt employees.
These tips can help your company meet FLSA and DOL requirements.
An employee’s exemption status should be determined through case-by-case evaluations. Employers should regularly review employee classifications to account for the total number of employees meeting the exempt criteria. Determining which employee is exempt and non-exempt is critical in protecting your company from FLSA non-compliance which can result in back pay, fines, and other financial hardships. While this can be a time-consuming and confusing process for employers, determining the total number of non-exempt employees is essential for minimizing unexpected financial burdens. A few guidelines that can help employers are:
- Make sure workers meet the qualifications to be classified as exempt or non-exempt. Conduct reviews of how and why employees are classified, and make sure you keep records for all employee classifications.
- Pay attention to the title, position, and authority that each employee has. But keep in mind, these roles do not automatically determine an employee’s exemption status.
- Don’t forget about independent contractors, volunteers, interns, trainees, or temporary employees that have special rules employers need to follow.
- Document and organize your company’s compensation practices and employee wages. Just because no one is complaining does not mean there are no wage and hour violations taking place.
- Remember, you are not alone. If you are uncertain about exemption status, then seek advice from HR specialists and consultants that can help guide you through effective employment practices.