Employee Classification | Hourly Pay vs. Salary Pay



Fun fact: on average, total wage and hour payments due to unpaid overtime, failure to provide meal and/or rest breaks and off-the-clock work total approximately $400 million per year. On average, companies have paid $5.3 million to resolve one case.

If you’re thinking, “No problem, I outsource my payroll, so everything is fine,” I would agree. Your payroll probably is just fine. But are your employee classification?

In every company, employees are classified as either exempt (salaried) or non-exempt (hourly) and entitled to overtime pay. Do you feel 100 percent confident your employee classification are correct according to the guidelines issued by the Fair Labor Standards Act (FLSA)?

Here’s what I usually see. Most companies correctly classify the typical non-exempt positions like receptionist, assistants etc. Then things get fuzzy. For the record, just calling someone a manager does not make them exempt if they aren’t doing management work.

Trust me, I’ve heard all the excuses to classify an employee as exempt. News flash: it is against the law to classify someone as exempt to avoid paying overtime.

So, what does constitute an exempt employee according to FLSA?

They must:

If your exempt employees meet all the items above, congratulations! They are exempt. If not, it’s back to the drawing board for you.

If the realization is just hitting that you have employees incorrectly classified as exempt, you’re probably wondering, “Now what?”

Simply said, you are not paying your employee fairly or legally. That comes with risk.

Here’s the crazy thing: employees tend to want to be exempt. I’ve scratched my head over this for years. So, if you currently have exempt employees you need to move to non-exempt, it might not be a slam dunk conversation. Keep in mind that an employee may also question, “Why now?” It would be wise to be prepared with an answer. The last thing you want is to justify your previous classifications to the Department of Labor.

Here’s what has worked for me. The law. Plain and simple. The conversation with an employee goes something like this:

“We just completed an internal audit of employee classifications. As a result, it was determined your position is classified incorrectly, based on current job duties. Effective immediately, you will begin to be paid hourly for all hours worked. This means you are also now eligible for overtime pay.”

Don’t forget a classification change might mean the employee now must complete a timecard, so make sure to explain that process.

Don’t apologize or say you have done anything wrong. You haven’t. You made the best decision with the information you had and are doing the same now.

Remember, incorrectly classifying your employees is a disservice to them and against the law. If it’s wrong, fix it![/vc_column_text][/vc_column][/vc_row]

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