Wondering how to classify a position or two, or three? You’re not alone. Overtime costs are prohibitive for most employers, but they must pay OT wages to non-exempt employees. It’s the law. So, let’s just make all of our employees exempt—pay them a salary. Not so fast.

The overtime regulations under the Fair Labor Standards Act (FLSA) are full of gray zones that lead to confusion if you don’t study them carefully. In general, exempt employees must be paid on a salary basis of no less than $455 per week and perform certain types of work that:

  • Is directly related to the management of their employer’s business, or
  • Is directly related to the general business operations of their employer or the employer’s clients, or
  • Requires specialized academic training for entry into a professional field, or
  • Is in the computer field (with some exceptions), or
  • Is making sales away from their employer’s place of business, or
  • Is in a recognized field of artistic or creative endeavor.

If you are in doubt about a position’s proper classification start by reviewing the Department of Labor’s (DOL) guidelines for overtime exemptions before you act. You can find detailed guidance from the DOL via the FLSA Overtime Security Advisor.

Classifying managerial or administrative positions

For a quick review, here are some helpful hints when classifying managerial or administrative positions:

Make sure you don’t confuse a title with duties. Giving a position a title of manager doesn’t automatically make that employee exempt. Managers must pass the duties test. Ask yourself these questions:

  • Are they supervising two or more people?
  • Do they hire, train, or schedule employees?
  • Are they reviewing performance and applying discipline when needed?

Calculate what you are paying for this position. Paying a “salary” instead of an hourly wage does not automatically make the position exempt. Exempt workers must:

  • Pass the duties test (described above)
  • Earn at least $455 per week (as noted in the intro)
  • Not have their pay linked to hours worked

Understand the administrative exemptions

Finally, pay careful attention to administrative exemptions. An exempt administrative employee must use independent judgment and discretion. The regulations provide an expanded description of the types of duties which will entail the exercise of independent judgment and discretion. Those duties include:

  • the authority to formulate, affect, interpret, or implement management policies or operating practices;
  • carrying out major assignments in conducting operations;
  • the authority to commit the employer in matters that have significant financial impact;
  • the ability to waive or deviate from established policies and procedures without prior approval;
  • the investigation and resolution of matters of significance; and similar tasks.

Here is an illustrative, but not all-inclusive, list of generally exempt administrative positions:

  • Insurance claims adjusters
  • Financial services employees
  • Human resources professionals
  • Employees performing work in tax, auditing, marketing, quality control, and other specialty areas

Employer’s can find themselves in a world of hurt if they incorrectly classify a position as exempt. Both state and federal authorities have ramped up their efforts to audit employers’ wage and hour practices, and there is never a shortage of disgruntled employees ready, willing and able to lodge a complaint and start an excruciating, costly investigation.

HR Advocate does not give legal advice, but provides best practices advice to help employers reduce risk of liability and improve communications and relationships with employees. Your HR Advocate can help sort through the many details when classifying employees.

 

 

Exempt or non-exempt? The Confusing World of Classifying Employees
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