Employee Classifications: When Must You Pay Overtime

Wal-Mart has agreed to pay $4.8 million in back pay and damages after the U.S. Department of Labor (DOL) found that the company failed to pay overtime to more than 4500 workers. Labor claimed Wal-Mart improperly classified security guards and some eye care managers as exempt and therefore did not have to pay them overtime. The Department of Labor disagreed and stated that these workers were nonexempt under the Fair Labor Standards Act (FLSA) and should have been paid overtime for all hours worked in excess of 40.

You may be thinking that you’re not Wal-Mart and therefore have nothing to be concerned about. Unfortunately, you’d be wrong. Misclassification of workers is a very common mistake made by employers and the DOL has been clamping down on these, handing out heavy damages.

 So what’s the difference between exempt and nonexempt and is this the same thing as classify a worker either hourly and salaried?  The federal Fair Labor Standards Act (FLSA) identifies three categories of employees: Hourly, Salaried Nonexempt, and Exempt.  Hourly employees receive an hourly wage for all hours worked and time-and-one-half for all hours worked in excess of 40 per week.  Salaried Nonexempt employees are paid a weekly salary for a set number of hours, but also receive time-and-one-half for all hours worked in excess of 40 per week.  Exempt employees are paid a salary of at least $455 per week or $23,660 per year and must meet one of five FLSA testing guidelines. The tests are categorized for workers who are administrative, professional, executive, computer-related, or outside salespersons as stated by the FLSA. If the position meets the respective requirements as an exempt employee, then they are not entitled to overtime, regardless of hours worked.  If they do not meet the guideline, then they are nonexempt and must be paid overtime for all hours worked in excess of 40. The law also contains a “highly compensated employee” exemption and rules for deductions of pay to exempt employees for absences.

The tests are very complex.

So unless an employee meets these strict testing requirements, the position should be classified as nonexempt and the employee should be paid overtime for all hours worked over 40.

If you have any questions on how to properly classify your workers, give me a call.

Rick Dacri

Dacri & Associates, LLC

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5 Comments

Filed under Compliance

5 responses to “Employee Classifications: When Must You Pay Overtime

  1. Hans

    Rick could you please elaborate on this a little more for me.

    “The law also contains a “highly compensated employee” exemption and rules for deductions of pay to exempt employees for absences.”

  2. The regulations contain a special rule for “highly-compensated” workers who are paid total annual compensation of $100,000 or more. A highly compensated employee is deemed exempt under Section 13(a)(1) if:
    1. The employee earns total annual compensation of $100,000 or more, which includes at least $455 per week paid on a salary basis;
    2. The employee’s primary duty includes performing office or non-manual work; and
    3. The employee customarily and regularly performs at least one of the exempt duties or responsibilities of
    an exempt executive, administrative or professional employee.
    Thus, for example, an employee may qualify as an exempt highly-compensated executive if the employee customarily and regularly directs the work of two or more other employees, even though the employee does not meet all of the other requirements in the standard test for exemption as an executive.
    Total Annual Compensation
    The required total annual compensation of $100,000 or more may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period, but does not include credit for board or lodging, payments for medical or life insurance, or contributions to retirement plans or other fringe benefits.
    Make-up Payments and Prorating
    There are special rules for prorating the annual compensation if employees work only part of the year, and which allow payment of a single lump-sum, make-up amount to satisfy the required annual amount at the end of the year and similar make-up payments to employees who terminate before the year ends.
    Customarily and Regularly
    “Customarily and regularly” means greater than occasional but may be less than constant, and includes work normally and recurrently performed every workweek but does not include isolated or one-time tasks.

  3. Pingback: Exempt Employees: Can You Dock Pay for Illness? | Uncomplicating Management

  4. Pingback: Breaks for Salaried Employees | Uncomplicating Management

  5. Pingback: Compensation Trends and Pitfalls: What You Must Know and Do | Uncomplicating Management

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