Are you classifying employees correctly?

Friends, are you classifying your employees correctly? Or do you know what that question is asking?

For you, this may be the question of the hour. 

For me, this has been a conversation I've been having (I'd probably more accurately say a conversation I've been arguing) for nearly 20 years. 
 

There are a few things at play here -

But here's what I'm talking about:

Do you have the right people in your organization classified as exempt or non-exempt?

And not to be the fun police, but this isn't based off your opinion. It's based off of criteria set forth by the Department of Labor. 

Employees exempt from the FLSA (Fair Labor Standards Act) typically must be paid a salary above a certain level and work in an administrative, professional, executive, computer or outside sales role. The Department of Labor (DOL) has a duties test that can help employers determine who meets this exemption criteria.

Employers are not required to pay overtime to employees who are properly classified as exempt. They may, however, choose to compensate such individuals for extra hours worked through benefits packages or other options.

Non-exempt employees are usually paid an hourly wage or earn a salary that’s less than a minimum amount determined by the DOL.

If employees are non-exempt, it means they are entitled to minimum wage and overtime pay when they work more than 40 hours per week.

Failure to properly distinguish exempt from non-exempt employees, sometimes referred to as misclassification, can adversely affect businesses. Some employers believe it's easier to just place a person as salary/exempt, but misclassification may result in:

• Regulatory enforcement action

• Fines and penalties

• Employee lawsuits for unpaid overtime

• Costs to remedy misclassification

Sometimes reclassification is necessary, but this too may come with some issues. For example, a non-exempt employee who is reclassified as exempt may resent no longer receiving overtime wages for the work above 40 hours they may be doing. While an exempt employee who is reclassified as non-exempt may perceive the change as a reduction in employment status or as a demotion (because they now have to clock-in and clock-out, etc.). 
 

To classify an employee as exempt, employers generally must apply the following three-pronged test (based on the DOL standards). Anyone who doesn’t meet these criteria and earns an hourly wage is considered non-exempt:

• Salary level
  Earnings are at least $684 per week or $35,568 per year.**

• Salary basis
  Payment is provided regularly and at a fixed rate proportionate to the annual salary regardless of the total hours worked.

• Duties
  The employee is assigned tasks consistent with those performed in the administrative, professional, executive, computer or outside sales fields.

  • I like to ask these questions: What is the decision-making ability for this role? Can this person make decisions that directly impact the bottom line without consulting someone else?

There is a proposed rule lingering right now potentially changing this amount to $55,000 from the $35,568. That's a 55% increase which is quite a leap. We won't know the final ruling on this proposed change for a little while, and employers will likely have a 60-day window to make any necessary changes to comply.

And if you'd like to bring us onboard your organization to do an audit of employee classifications or any other HR or People Ops service, just holler. 

We've got options from $500/month to $6,000/month and are here to help.