June 23, 2018

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Do You Know if Your Employees are Properly Classified?

Did you know that employers all over the US are facing multi-million-dollar claims for unpaid overtime that resulted in many instances from the “improper classification” of employees? Did you also know that the laws governing how an employee is classified changed last August?

At this point you are probably wondering: How do I know if my employees are properly classified? I am not even sure what that means! According to the Federal Fair Labor and Standards Act (FLSA), all employees fall under two categories, exempt and non-exempt. An exempt employee is a person who is not eligible for overtime pay and a non-exempt employee is a person who is eligible to be paid time-and-a-half for any hours over 40 that are worked in a given week.

In order to determine if an employee should be classified as exempt, there are a few things that need to be done. The first step is to gather an accurate job description for that employee. Make sure that the job description is up to date and includes detailed information on the duties that the employee completes on a regular basis.

The second step is to determine which type of exemption may apply. The choices for categories of exemptions include: executive, administrative, or professional. Executive can include positions such as president or CFO. The administrative category can include such positions as office managers and executive assistants. Professional employees can include learned professionals, meaning that the employee requires a high degree of knowledge, creative employees, meaning that their primary duty consists of performing work that is related to a recognized field of artistic or creative endeavor, computer professionals, which means that their work is highly dependent upon the use of computer and software programs but are not in computer system analysis and programming occupations, and outside sales reps who are regularly away from the employers place of business making sales.

After the proper category has been determined, there are several questions that should be asked. The first question is: Does the employee make at least $455 a week? If the answer to the question is no, then the person is automatically non-exempt. The next question is how much the employee’s primary duties are directly related to the management or general business operations, and what is the level of discretion and independent judgment that is used by the individual? In actuality each job category has its own test related to the exemption status. Therefore, it is highly recommended that you visit, to access the Department of Labor’s checklists, or you can of course contact a human resources or legal expert.

Once you have determined if an employee is exempt or non-exempt, make sure to document the steps you took to make your determination. By doing so, you are providing a way to demonstrate that you made a “good faith” effort to classify employees correctly and abide by the law. It is also important to note that this is a federal law, in some states such as California there could be more stringent labor laws and if this is the case, state law will prevail.

- Eileen M. Levitt
Revised by Heather Sherbert

Ms. Eileen Levitt founded The HR Team in 1996. Ms. Levitt has more than 15 years of human resource experience relating to employee communications, employee training, recruitment and retention strategies, executive/employee coaching, employee benefits, financial management, compensation, and policy/procedure development. In 2003 Ms. Levitt was named Maryland’s Women in Business Advocate of the Year by the US Small Business Administration. Since forming The HR Team Ms. Levitt has served numerous domestic and international clientele in the following industries: publishing, communications, technology, biotechnology, staffing, trade associations, manufacturing, banking/financial services, medical/healthcare, professional service, non-profit, research/scientific, landscaping, retail, and utilities.

Heather Sherbert is a human resources specialist for The HR Team.