FLSA compliance is a big deal, so why do so many organizations incorrectly classify their hourly and salaried employees? Often, employee classification is sped through when onboarding an employee in your HRIS system. A common misconception is that the employer dictates whether their employee is hourly or salary. Truly, laws and regulations are spelled out in the Fair Labor Standards Act (FLSA).
Why FLSA compliance matters, and what it means.
Employer Beware! Incorrectly misclassifying an employee can lead to fines, penalties, backpay, lawsuits, and a poor business reputation down the road, so it is imperative to get it right from the start. So, how do you go about ensuring that proper classification for employees is handled?
The Fair Labor Standards Act (FLSA) has provided a duties test that helps determine if an employee is genuinely an exempt (salaried) individual. The Society for Human Resource Management (SHRM) has also provided its own exemption questionnaire which can be found here. One must note that there are different guidelines based on specific professions, which will be mentioned later in this blog.
Historically, an exempt employee was a salaried individual who receives a regular, pre-determined rate of pay that is equal or higher than $684 per week. As the world of work continues to evolve, further exemptions have been outlined based on very specific types of work. Exemptions vary based on the below types of roles:
Exempt FLSA roles
- Administrative Workers
- Learned Professionals
- Creative Professionals
- Computer-Based Roles
- Outside Sales
- Highly Compensated Employees Performing Executive/Professional/Administrative Duties
The below chart outlines the exemption criteria for each type of exempt role as defined by the DOL (SHRM):
(CEOS, CONTROLLER, VP, DIRECTOR)
|REGULARLY RECEIVES A PRE-DETERMINED AMOUNT OF PAY CONSTITUTING ALL OR PART OF THE EMPLOYEE’S SALARY PAID AT LEAST $684/WEEK PRIMARY DUTY CONSISTS OF MANAGING THE ORGANIZATION IN PART OR IN WHOLE DIRECTS THE WORK OF TWO OR MORE FULL-TIME EMPLOYEES OR FULL-TIME EQUIVALENTS HAS THE AUTHORITY TO HIRE/FIRE, OR PROMOTE/DEMOTE EMPLOYEES|
|ADMINISTRATIVE (MANAGER, SUPERVISOR, ADMINISTRATOR)||Regularly receives a pre-determined amount of pay constituting all or part of the employee’s salary Paid at least $684/week Primary duty consists of performing office or nonmanual work Employee has discretion and can use independent judgment regarding significant organizational details|
|CREATIVE/LEARNED PROFESSIONAL (ACCOUNTANT, NURSE, ENGINEER, COMPOSER, SINGER, GRAPHIC DESIGNER)||Regularly receives a pre-determined amount of pay constituting all or part of the employee’s salary Paid at least $684/week (Learned Professional) Performance of work that requires advanced degree of knowledge and is predominantly intellectual in character (Learned Professional) Advanced knowledge in a field of science or learning (Learned Professional) Advanced knowledge acquired by specialized study and demonstrated by either possessing a degree or performance/knowledge level of those who have an advanced, specialized degree (Creative Professional) Primary duty of work consists of invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor|
|COMPUTER-RELATED (NETWORK OR DATABASE ANALYST, DEVELOPER, PROGRAMMER, SOFTWARE ENGINEER)||Paid at least $684/week OR 27.63/HR Primary duty consists of: Application of system-analyst techniques and procedures, including consulting Design, development, documentation, analysis, creation, testing or modification of computer systems or programs Design, documentation, testing, creation, or modification of computer programs related to machine-operating systems Combination of the above duties which requires the same level of skill|
|OUTSIDE SALES (SALESPEOPLE, CONTRACT NEGOTIATORS)||Primary duty is making sales or obtaining orders for contracts for services or for the use of facilities for which consideration will be paid by the client or customer Customarily and regularly engaged away from the employer’s workplace or place of business|
|HIGHLY COMPENSATED EMPLOYEES PERFORMING EXECUTIVE, PROFESSIONAL, OR ADMINISTRATIVE DUTIES||Paid at least $107,432 annually including at least $684 per week Primary duty consists of performing nonmanual work Regularly performs at least one of the exempt duties or responsibilities of the executive, professional or administrative exemption|
Employers must make sure to pay attention to state and local laws along with the above DOL FSLA exemptions. Some states have established their own tests for exemption. Some of these tests have a higher minimum weekly salary and/or more stringent duties tests than the above FLSA exemptions. The best practice is to apply both federal and state/local tests to determine an employee’s status.
Knowing the above, it is a best practice to plan ahead and create roles and job descriptions before an issue presents itself. An organization must have a good grasp of the job duties for each position. Deploying job analysis to draft accurate and concise job descriptions will help uncover bona fide occupational qualifications and essential functions of each role. Investing time in these job descriptions will help identify gaps in your current talent pool and will help identify which position can be classified as exempt or non-exempt.
Need help drafting accurate and compliant job descriptions? Whirks can help!
A best practice is to classify every employee with the same position the same way. For example, if you have two managers in your organization, they should be classified the same. If you deploy the exemptions test and one employee qualifies as exempt while the other does not, it is best to go back and review your job roles, job descriptions, and ensure that your non-exempt employee is in the right role based on a thoroughly written job description and not performing the same duties as the exempt employee. If so, you may need to either adjust the role or pay for the non-exempt employee to avoid any unintentional discrimination.
As one can see, correctly classifying your workforce goes much deeper than what a lot of employers think on the surface and it is crucial to get it right the first time! At Whirks, we are in your HR corner to help guide your organization through all compliance and regulatory needs. Give us a shout to see how we can help your business!