To avoid costly and time-consuming legal hassles, you might want to review your overtime pay policy and all your exempt-employees’ status to comply with the Fair Labor Standards Act (FLSA).

Many employers continue to violate the FLSA’s wage and hour rules. For exempt employees, the FLSA issued an opinion letter in Nov. 2018 regarding reasonable relationship tests for employers.

Typically, such employers incur costly expenses because they incorrectly classify employees as exempt to avoid paying them for overtime. Such a mistake is costly because employees can get two years in back wages.

Worse, if it’s shown it was an intentional act, employees can get three years back pay at one-and-a-half times the hourly rate as well as liquidated damages that equivalent to the unpaid wages.

So, it’s important to examine your job descriptions and your employees’ classifications.

And when you hire an employee, you must correctly classify the person either as exempt or nonexempt.

General exempt guideline

In essence, the Department of Labor (DOL) has two requirements for exempt status:

  1. The employee is paid a salary.
  2. The person has certain duties termed exempt. Such positions are administrative, computer, executive, professional, outside sales and other highly compensated employees.

For example, employees who are paid at least $455 per week, if they meet certain levels for administrative, executive or professional.

The professional category includes erudite professional and creative professional.

Special levels or tests, determine the classifying of computer professionals and outside salespersons.

As for highly compensated employees classified as exempt, that usually means some who is paid $100,000 annually and who performs duties as an administrator, executive or professional.

From the DOL, here are more details more details on each classification — they are:

Executive Exemption

To qualify for the executive employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455* per week;
  • The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
  • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative Exemptions

To qualify for the administrative employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455* per week;
  • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional Exemption

To qualify for the learned professional employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455* per week;
  • The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
  • The advanced knowledge must be in a field of science or learning; and
  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

To qualify for the creative professional employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455* per week;
  • The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Employee Exemption

To qualify for the computer employee exemption, the following tests must be met:

  • The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $455*per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;
  • The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;
  • The employee’s primary duty must consist of:

1) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;

2) The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

4) A combination of the aforementioned duties, the performance of which requires the same level of skills.

Outside Sales Exemption

To qualify for the outside sales employee exemption, all of the following tests must be met:

  • The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
  • The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Highly Compensated Employees

Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455* per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

For additional information, visit the wage and hour DOL page DOL’s wage and hour page and/or call the toll-free information and helpline, available 8 a.m. to 5 p.m. in your time zone, 1-866-4USWAGE (1-866-487-9243).

From the Coach’s Corner, here are related management resource links:

16 Best Practices to Stay out of Legal Trouble with Employees — Generally, in human resources, companies find themselves in legal hot water because they inadvertently make mistakes with their employees. It’s important to triple down on preventative measures and responses to legal hazards when necessary.

How to avoid EEOC Discrimination Suits — Here are six tips for micro-companies and 13 strategies for larger organizations to avoid EEOC migraines.

10 Tips on Responding to EEOC Complaints — Despite all the court cases, warnings and complaints filed at the Equal Employment Opportunity Commission, a study shows big companies are guilty of favoritism in their promotion practices. If you’re so accused, here’s what to do.

Avoid EEOC Legal Hassles over Unpaid Leave Requirements — You might want to review your current human resource policies. The Equal Employment Opportunity Commission (EEOC) has continued to push employers on unpaid leave under the Americans with Disabilities Act (ADA).

Tips to Avoid Legal Stress from Nonexempt Pay Errors — If your pay program for nonexempt employees isn’t kosher, you’ll likely be confronted with legal hassles. Such hassles will result in having to pay back wages, overtime, liquidated or double damages.

“Corporate culture matters. How management chooses to treat its people impacts everything – for better or for worse.”

-Simon Sinek

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.