All of your employees are classified as exempt or nonexempt. The practical difference is you have to pay overtime (1 ½ times the hourly rate) for nonexempt workers that work over 40 hours in a week. You do not have to pay overtime for exempt employees.
It is not your decision as to how an employee is classified. The Fair Labor Standards Act provides guidance. There are two major tests used to determine the exempt/nonexempt status of an employee: The salary level test and the job duties test.
Any employee that is paid less that $23,600/year is nonexempt and must be paid overtime when they work more than 40 hours in a week. The Labor Department under President Trump has finalized a rule where that wage will increase to $35,500/year beginning January 1.
If they make more than $23,600 (today) or $35,500 (beginning January 1) then we look to their job duties. Please note, it is the job duties, not the job title. The department of labor does not care what you call a position, they only care about what that person does.
There are three sets of job duties that are exempt (and not subject to overtime):
1. Executive
2. Professional
3. Administrative
Executive and Professional are easy to understand. If the person is the boss, if the person is an engineer or sales person they are exempt.
Administrative is a little trickier. Here is what the Department of Labor says:
The Regulatory definition provides that exempt administrative job duties are
(a) office or nonmanual work, which is
(b) directly related to management or general business operations of the employer or the employer's customers, and
(c) a primary component of which involves the exercise of independent judgment and discretion about
(d) matters of significance.
While clerical work may be administrative, it is usually not exempt. Filing, filling out forms and preparing routine reports are not likely to be high-level enough to be administratively exempt.
You do not want to misclassify your employees. The result will be a bureaucratic nightmare for you and can cost you a lot. You will have to provide historical records and then pay employees time and a half for those employees that worked over 40 hours in a week. You may also be subject to penalties, fees and audits.
How will the Department of Labor find out that you are doing it wrong? An unhappy employee that knows the rules is the usual whistleblower. Someone you have fired and is mad at you. Do yourself a favor: know and follow these rules provided in this newsletter.
Have questions? Please contact me:
Tom Matthews
(239) 776-5286
