Under the Fair Labor Standards Act (FLSA) employers are expected to classify their employees as either exempt or nonexempt.

What’s the difference between the two?

Exempt Employees

The FLSA has multiple exemptions under specific categories of employers and employees exempted from overtime requirements.  The most general exemptions include:

• Employee must be paid on a salary basis
• Employee must receive a minimum salary of at least $913/week (As of December 1, 2016)
• The employee must meet the general duties test of one of the white collar exemptions

White collar exemptions are employees labeled as:

• The employee’s primary duty must relate to managing the business or one of its recognized departments or subdivisions.
• The employee must customarily and regularly direct the work of at least two full-time employees (or their equivalent in part-time employees).
• The employee must have the authority to hire or fire employees, or the employee’s recommendations as to hiring, firing, promotion, or demotion must carry particular weight.

Non-Exempt Employees

Most employees fall under the non-exempt category, and are entitled to overtime pay under FLSA. It is up to the employer to determine the required work week for the employee. Non-exempt employees:

• Must receive at least the applicable minimum wage for the first 40 hours of work
• Must receive one-and-a-half times their regular rate of pay for all hours worked over 40 hours in one work week
• Typically perform work that is routine with set rules and standards

Misclassified Employees

What are the consequences for misclassifying an employee?

According to the United States Department of Labor, “Misclassified employees often are denied access to critical benefits and protections to which they are entitled, such as the minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces. Employee misclassification generates substantial losses to the federal government and state governments in the form of lower tax revenues, as well as to state unemployment insurance and workers’ compensation funds. It hurts taxpayers and undermines the economy.”

The US Department of Labor enforces the Fair Labor Standards Act. An employee or the DOL can recover money that should have been paid out. The DOL can go back two years from the date of the lawsuit, or three years for willful violations. They can also recover an equal amount in liquidated damages, unless the employer can establish justification for failure to comply with the law.

If you are having trouble properly classifying your employees, it is important to seek counsel. HR Representatives (such as Paychex Representatives) will be able to guide you, but cannot give you specific classifications for your employees. To be on the safe side, contact legal counsel whenever a position’s specific classification is in question.

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