Are you a small business employer who has a hard time figuring out which employees can be paid a salary and which must be paid hourly? If so, you’re not alone. Many small business owners often have trouble making these determinations. But it’s important that you know the difference between exempt and non-exempt jobs, otherwise you may have to pay hefty fines due to misclassification of workers in the workplace.
The Fair Labor Standards Act (FLSA) spells out the duties, hours worked and overtime pay requirements of nonexempt and exempt employees. Nonexempt employees are paid an hourly wage and overtime (time and a half) if they work more than 40 hours a week. Exempt employees are paid an annual salary and don’t receive overtime pay. To figure out whether an employee is hourly or salaried, you need to determine what type of work employees will do in their jobs.
Generally, employees in exempt positions determine how the company will operate. They create, explain and carry out company policies, and they use their skills and judgment to carefully decide how to proceed with important company matters. However, it’s important to note that some salaried positions may not actually be considered exempt, so employers and entrepreneurs must make sure they meet the FSLA duties test.
The duties of 5 job categories that the FLSA, usually, allows to be exempt, include:
- Executive – An executive must manage the operations of the business or a department. Also the individual must supervise at least 2 or more employees and make the decisions about hiring/firing, promotions and assignments.
- Administrative – An employee must complete office (non-manual) work that’s related to the management or operation of the business. Often, companies misapply this exemption to clerks, administrative assistants, secretaries and customer service employees, but these positions don’t meet the duties test.
- Professional – Employees, normally, are required to have a 4-year college degree or state license in a specialized field, such as law, medicine, teaching or accounting.
- Computer professional – Employees are high-level computer professionals who design, develop, test or modify computer systems or programs; or they analyze systems to determine hardware, software or system functionality.
- Outside sales – Employees sell company products/services and obtain orders while working outside of the business. This exemption doesn’t include inside sales positions.
Typically, nonexempt employees work under supervision and perform company tasks. They may even represent the company in public. But if the employee doesn’t meet the FSLA salary and duty exemption tests then the individual is considered a nonexempt or hourly employee.
Unfortunately, many companies and employers make mistakes when it comes classifying employees since the state and federal laws can be confusing to interpret at times. That’s why you need the help of The Payroll Department, a payroll services provider. The experts at The Payroll Department can help you review how your small business is classifying employees, so you can correct any problems immediately to hopefully avoid noncompliance penalties and make sure your payroll is correct, accurate and complete. Contact The Payroll Department today!
-Ariane of The Payroll Department Blog Team