Description: The article mentions exempt employee. The author will cover proper employee classification which relates to the exempt and non-exempt employees from the Fair Labor Standards Act, emphasizing why these classifications matter, some errors the employers make and action items to make sure you maintain compliance.
Thank you for joining us, we’re going to take a few minutes to talk about proper employee classification, as it relates to the exempt and non-exempt employees from the Fair Labor Standards Act, there’s a lot to this subject.
When you look at wage and hour violations as a whole, such as independent contractors versus employees, if it is like a tip credit reporting, but we’re going to focus primarily on the exempt classification today.
My name is Matt vaidhi, I’m the president of ERG payroll and HR, you can visit us at WWE G payroll comm or follow us on twitter at ERG payroll, I’ll be moving quickly through this topic, so take down my email address.
If you have any questions or if you’d like to take advantage of our free checklists that we have to share and you can all answer more specific questions for a via email as well.
Our agenda is that we’re going to talk about why these classifications matter, what the FLSA exemptions are, some common errors employers make and action items you can take to make sure you maintain compliance.
Let’s talk about why it’s important to properly classify your employees as exempt or non-exempt, it’s important to make sure that you’re paying employees what they should be paid for the work performed, but do any of you recognize this app that the deal is well created?
This is a timekeeping app for your employees to track their hours and ensure that they’re being properly compensated, many DOL audits can be random, they’re often triggered by employee complaints.
I found this image on an attorney website that was advertising all the different ways that an employee could track their information to build a case against their employer to get paid for hours that they work.
They don’t feel they were properly compensated for watching another video recently from a wage and hour attorney that said prior to 2009, their wage in our cases were less than 5% of their business.
Now it’s over 75% of their practices business employees who are leaving whether it be voluntary or they’re being forced out, the door are grasping at straws on their way out, trying to find a way to get compensated.
All it takes is one person in your company to hear about how another individual is able to recoup damages from back wages and you might as well get the audit started in fiscal year 2014, the Department of Labor wage and hour division recovered more than two hundred and forty million dollars in back wages for more than 270,000 employees.
The Department of Labor has hired over 1,500 new auditors over the course of the last four years, now the bad news for you is that when they come in for an audit over seventy three percent of the time, results of violations are found.
As a result, they recouped more than 1.3 billion since 2009, this is a focal area for the DOL, not only because it’s a cash cow, but we also have to remember the main reason why these laws are being enforced is to protect employees, these were wages that were earned by the employee.
We all agree that our employees are our first asset, if we treat them right, we typically avoid the violations and are able to have a much more amicable workplace and have more productive team members, they’re being properly compensated for a job well done.
The other reason why it’s important to make sure you have proper classifications is the damages that can occur in the PR space, so this can be tough to bounce back, once you’re known as an employer or that tries not to pay their employees for the time that they’ve worked, it can make it very difficult to attract top talent.
But these violations can also damage your brand in the eyes of the consumer, so let’s look at the Fair Labor Standards Act, the Fair Labor Standards Act was instituted in 1938 to ban oppressive child labor and institute a minimum wage.
At the time, the minimum wage was only 25 cents an hour, FDR signed 121 bills to bring this act into life, it has evolved and now covers a few more things and continues to help lower wage, earning employees from taking admit they can take advantage of the employers.
We’re going to focus primarily on the minimum wage overtime and record keeping piece of the Fair Labor Standards Act, there are certain classes of employees that are exempt from these minimum federal require particularly those mentioned the minimum wage over time and record-keeping.
We’re going to walk through what classify someone for these five exemptions and some of the common mistakes that employers make when classifying individuals, there’s a two-part test for determining.
If someone is exempt, oftentimes people confuse the term exempt with any employee who is salaried and in a non-exempt employee for anybody who is hourly, that’s often true, that’s not the determining factor, the two-part test that the DOL will conduct to determine proper classification, it involves the type of work you do or your duties of your job combined with your salary basis that make you exempt.
So the salary basis test states that someone must make at least four hundred fifty five dollars a week or twenty three thousand six hundred sixty dollars a year in salary and that amount cannot be reduced based on the quality or quantity of the work performed.
There are a couple of minor exceptions to this, but it is a good starting point, if you want to look at your jobs and try to determine, if they will qualify for exempt status.
The second part of the test is the primary duties of the employee. The key word here is primary radioshack was infamous for their case where they were calling all of their employees store managers while they were doing many tasks that were not considered management level tasks.
They were trying to pay them a salary as a result of this title, they were ding for nearly thirty million dollars and this opened the eyes of employees and employers around the country as to the difference between a title and the actual duties performed as this was a well-publicized case.
Let’s take a look at each of these types of exemptions in a little more depth, we’ll start with the executive exemption, an executive is somebody like a CEO, a controller, a vice president or director, they have to meet those salary requirements we discussed.
Their primary duties must consist of managing the enterprise or a department or subdivision of the enterprise, they have to customarily and regularly direct the work of two or more full-time employees or their equivalents.
They also have to have the ability to hire or fire or make recommendations that carry heavy weight, when it comes to the hiring or firing into other individuals and they have to be able to use independent judgment and spend 20% of their not more than 20% of their time focused on activities that are not closely related to the executive work.
So this one is class that had the largest set of plaintiffs in recent years, they frequently think about the controller, for example, somebody who’s called a controller, they don’t operate independently, they emphasize the fact that they are lack of independent frequent performance of management duties or non involvement and strategic strategic decision-making.
They assert that their work is typically performed under strict guidelines and they don’t have any independent discretion, so you need to make sure that these individuals are able to operate independently.
Last year alone, we had massive settlements from such claims by Morgan Stanley for nearly 50 million Wachovia for nearly 40 million Prudential, each lawsuit involved allegedly misclassified financial advisors brokers and other industry personnel that were trying to sneak onto this executive exemption.
The next exemption is the administrative exemption, examples of an administrative exemption would be managers, supervisors or administrators, they first have to pass the salary to us to 455 a week.
Then you have to focus on their primary duties, this trips people up often times as well, another commonly misclassified group individuals who perform office work directly related to the management or general business operations.
But here’s the most important part, the work has to include the exercise of discretion and independent judgment with respect to matters of significance now does that person that you’ve tried to qualify as an administrative exemption have the ability to operate independently and how important those decisions are that they’re operating independently ordering pens and post-it notes and having the independent ability to determine whether or not we should spend an extra nickel here.
There is not the ability to operate with respect to matters of significance, so be careful on this one, we see it all the time, people are trying to make a front desk person exempt under the administrative exemption, that’s typically not going to hold up in a case.
The professional exemption learning creative examples of this are accountants, nurses, engineers, composers, graphic designers, the learned professional has to perform primary duties that performance of work that requires advanced knowledge typically well beyond high school and in a field of science or learning more often than not consistently includes the exercise of discretion and independent judgment.
The creative professional consists of performing work that requires invention imagination originality or talent and a recognized field of artistic or creative endeavor these, this is a less violated category, because it seems straightforward when you look at people that fall into this computer-related.
So examples of people that fall into the computer-related exemption are network or database analysts, developers, programmers, software engineers, so they do have a slight difference here with the salary test.
They can also come in at 2763 an hour and pass for this exemption on the first part of the basis, their primary duty must consist of the application of system analyst, techniques and procedures or the design development documentation analysis creation testing or modification of computers.
The design documentation tests and creation or modification of programs or a combination of these duties which require the same level of skills oftentimes less violated, because people know it when they see it.
When it comes into computer related exemptions much different than the executive verses administrative exemptions outside sales, this one does get violated a good bit, so impulsive Outside Sales exemption are going to be sales persons and contract negotiators that are regularly away from the employers place of business.
These people do not have to quality, do not have to qualify for the four or 55a weeks, so their primary duty has to consist of making sales and they’re typically compensated on a commission.
Therefore, they need to be away from the building, so where we see people get tripped up with, this is trying to classify an inside sales person as exempt and maybe only pay them $300 a week and base salary and a commission for all the sales that they make.
If they’re inside sales or if they’re in the hospitality industry and their sales manager quote-unquote, but you’re compensating them with Commission, then the 455 salary, then you need to keep a look at this.
If you’re going to try to classify that much exempt that they’re spending their time away from the business highly compensated employees that are performing executive admin and professional work are also exempt, they’re outside of that Big Five exemption and they need to have a total compensation of at least $100,000 a year and at least 455 of that has to come from the salary piece.
Their primary duty has to consist of performing office non manual work, so there are not as many restrictions on exactly the type of work, they need to be a highly compensated individual, but no matter how highly paid manual workers and other blue-collar workers are not eligible for this exemption for more details on this.
In each of the exemptions, I can provide you with a handy checklist, if you shoot me an email to my email address, you’ll see at the end of this, it’s matt at ERG payroll comm and that will give you the ability to go through and analyze each job in detail to determine if your employees meet these exemptions common errors that organizations make are misclassifying managers.
As we mentioned with the RadioShack case, do you have anybody with the title of a manager when they’re not managing employees, they don’t have the ability to operate.
Sometimes, employers think that their employees can opt out of being paid overtime, this is not true, because someone signs a contract with you, that says that they’re going to work for their same wage over 40 hours that does not change that it is a wage, an hour violation and you will owe that wages.
Oftentimes, in that circumstance, it will be the employee to be the one to turn you in and to make sure that they get compensated for those overtime hours, once it becomes infinitely aware to them and then the record-keeping requirements, we often see people do not do a very good job keeping up with the hours of the individuals who are not exempt and also doing a good job analyzing the jobs to make sure that people qualify for the exemptions.
One of the biggest record-keeping requirements that record-keeping snafus that we see is that people aren’t keeping their time cards on hand as long as they should be, they’re putting these aids across the board.
The Department of Labor loves coming in and seeing that somebody worked eight hours every day, it’s probably highly unlikely that somebody walks in at 9:00 a.m. every morning and walks out at 5:00 p.m. exactly every single day, you need to make sure that you keep your FLSA posters up-to-date for all employees or all of your posters up-to-date and visible for all employees.
If you shoot me an email after this, we’d be glad to help you identify which posters you need and where, you need to track accurately, not those hours work, when the meal period was taken total hours worked in a week and keep those files available for three years.
So you can take as an employer to ensure compliance is audit the classifications of your jobs and ensure policies are in place to accurately depict what employees are doing in their current position and what you expect from that job and review the job descriptions that you have.
This is a great time to do a job analysis, it can be a great tool to help ensure that they’re properly classified, but also help you in the instance that an employee and disputes it down the road, you’ll have records indicating your position.
So look at what an employee does on a day-to-day basis, make sure it aligns with the primary duties that fit into the exemptions and have the employee help the process to determine what they’re doing on a daily basis and make sure you keep accurate payroll records and be proactive with the whole thing.
It will fair a lot better in case of an odd audit if you’ve taken the steps necessary to make sure that your employees are properly classified free resources available, as I mentioned, you can shoot me an email and mad at ERG payroll comm or you can go to our website where we have tons of free resources available out there for employers.
We have things like FLSA exam Force is not exempt checklists and guidelines, we have record-keeping guideline forms and plenty of different things out on the website that you can go to see.
I appreciate you very much taking your time with us today, if there’s anything we can do for you to help your organization improve your payroll HR or timekeeping processes, please let me know, thanks and have a great day.