Welcome to the new WhyHR blog! We will be blogging about a variety of human resources and people management topics aimed at helping small businesses effectively manage their teams in order to grow strategically. Have a topic you want us to cover? Let us know over on the contact form at the bottom of our home page!
Now, let’s jump into today’s topic: exempt vs. non-exempt employees and what that means for small businesses. The Fair Labor Standards Act (FLSA) covers most employees in the United States and requires a minimum wage payment plus overtime pay (one and one-half times standard pay) for hours worked beyond 40 hours in a standard work week.
One of the areas where small businesses struggle most is classifying exempt and non-exempt employees. In short, an exempt employee (sometimes referred to as a salaried employee) is one who meets the requirements to be exempt from the FSLA regulations on overtime. That means an employer could decide to not pay that employee overtime pay as long as they pay them the minimum required salary as set out by the FLSA. On the other side, a non-exempt employee (sometimes referred to as hourly) is eligible for overtime pay under the FLSA regulations.
You may have heard about the revised FLSA regulations coming later this year that increases the minimum salary requirement to classify an employee as exempt. The new regulations will require many companies to make adjustments, but many companies are not in compliance with the FLSA regulations that currently exist. Right now is a good time to review your current position/job descriptions so you can be ready to adjust before the new regulations go into effect in December 1, 2016. (By the way, that new minimum salary requirement that goes into effect is now $47,476 for exempt salaried employees.)
So how do you determine exempt vs. non-exempt status of your employees? The criteria includes a paid minimum salary requirement, the position’s role within the organization, and the daily job duties. — NOT job titles or the employee’s job description (as it’s written today), but by what the employee actually does on a day-to-day basis. Two of the biggest mistakes companies make are in the same area of assumption. When an employee has the word “manager” in their job title or the job description that’s been on file for years says “salary,” we assume we’re in compliance and all is good. Don’t assume. The easiest way to determine an employee’s daily job duties is to ask them to track the time spent on each task for a set period of time. Then, you can compare those daily job duties with the exemption criteria outlined in FLSA for a clear answer on whether the employee qualifies as exempt or non-exempt. This is an audit that every company should practice annually. Our companies evolve over time (no pun intended) and it’s our responsibility to make sure we stay in compliance along the way. The Department of Labor administers the execution of the FLSA and puts out the Exemption criteria for the five general employee classifications:
- Computer Professional
- Outside Sales
If some of your workforce falls into these five categories and you’re unsure if you have properly classified employees as exempt or non-exempt, we can help. Contact WhyHR today to discuss options for ensuring your company is in compliance with the Fair Labor Standards Act now and in the future.