Are you confident your company is classifying workers correctly? Misclassification can lead to costly compliance violations under the Fair Labor Standards Act (FLSA). Keep reading to learn the best practices for ensuring compliance with salary exemptions.
Properly classifying workers as "exempt" or "non-exempt" is crucial under U.S. federal law as it determines whether workers are entitled to overtime pay and other protections under the Fair Labor Standards Act (FLSA). Misclassification can lead to costly compliance violations.
Federal, State, and Local Compliance Requirements
Ensuring Proper Worker Classification
Importance of Thorough Job Descriptions
Risks of Worker Misclassification
Best Practices for Reclassifying Workers
Regular Review and Compliance Essentials
Companies must classify their workers correctly to avoid any risk of costly compliance violations. In addition to federal law, companies must comply with state and local laws that may provide greater benefits or protections than the FLSA.
For example, in California, the base salary threshold is higher than federal law, and must be complied with for a worker to be properly classified as exempt. Non-exempt workers are not exempt from FLSA regulations, and thus are entitled to minimum wage and overtime pay when they work more than 40 hours per week, as well as any state overtime provisions. Non-exempt workers are usually paid an hourly wage.
How can a company ensure they are classifying workers correctly? There are three tests that must be met for a worker to be properly classified as exempt:
A salaried worker must be paid at least $844 per week to be considered exempt. This translates to $43,888 annually. In some cases, state law requires a higher salary than the federal levels listed. For instance, in Alaska, California, Colorado, New York, or Washington, the salary needed to qualify for an exemption is even higher.
It's not enough just to pay the worker a certain dollar amount. In addition to the level of salary required, workers properly classified as exempt must be paid on a salaried basis. This means they receive a fixed weekly amount regardless of their hours worked. If they perform work during the week, they must be paid for the full week, with limited exceptions.
Depending on the exemption being used, the worker’s duties must rise to the exempt level:
The work performed must not be manual work and must be directly related to keeping the business running. The role must be more than just clerical.
Management of two or more workers must be a primary duty, and the worker must have input into the job status of other workers.
The primary duties must involve work requiring advanced knowledge in a field such as science or learning. Additional exemption categories relate to computer professionals, creative professionals, and others.
A thorough job description can help ensure that workers have been appropriately classified as exempt or non-exempt. A good job description will include specificity around the primary duties and responsibilities of the worker performing the role, along with the job title, qualifications, and any physical requirements.
This will help clarify the nature, type, and classification of each job; required skills, knowledge, and abilities for the role; and the expectations about the work performed by those holding the position. Job descriptions are also valuable in determining reasonable accommodations and managing return-to-work situations after a job-protected leave of absence or work-related injury.
Failure to properly distinguish exempt from non-exempt workers can adversely affect businesses. Misclassification may result in:
Before reclassifying workers, businesses should explain the law to them and ensure that the reclassification was not a result of their performance. This type of open communication can help prevent reduced morale.
Companies must ensure proper classification of workers as exempt or non-exempt. Regular review of job descriptions helps businesses align their classifications with legal requirements and stay compliant to avoid any risks. Misclassification can lead to serious consequences such as back pay for unpaid overtime, penalties imposed by regulatory agencies, and even lawsuits from affected workers.
Workers should be aware of their rights under labor laws and be proactive in seeking clarification from their companies if they have any doubts about their classification. Maintaining accurate job classifications not only ensures legal compliance but also fosters fair treatment of workers, contributing to a positive work environment. Please reach out to TCWGlobal for assistance.
For more information, please visit: https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime