updated September 1, 2023 · 3min read
Many businesses need employees to work more than 40 hours in a given week from time to time. Generally, that means paying employees overtime for those extra hours. However, businesses don't have to pay overtime to exempt employees.
Here's what it means for an employee to be exempt and who qualifies.
An exempt employee is one to which the Fair Labor Standards Act (FSLA) does not apply. As such, businesses aren't required to pay exempt employees overtime pay. In some cases, you may not be required to pay them minimum wage, either.
However, a business can't simply classify all employees as exempt to avoid overtime and minimum wage laws. For an employee to qualify as exempt, they have to meet certain criteria.
The Department of Labor (DOL) has three tests for exempt status. An employee must pass all three tests for the business to classify them as exempt. Those tests are:
Keep in mind that states may have their own criteria for determining who can be an exempt employee. For example, in California, exempt employees must spend more than 50% of their work time performing exempt duties, and the employee must earn a minimum monthly salary of at least two times the state's minimum wage for full-time employment. So be sure to check with your state's Department of Labor to ensure you're meeting state and federal requirements.
Non-exempt employees are usually paid by the hour rather than on a salaried basis. If non-exempt employees work more than 40 hours per week, they're entitled to overtime at one-and-a-half times their regular pay rate for each additional hour worked.
By hiring exempt employees, you don't have to pay overtime no matter how many hours the employee works in a week. However, even if you don't pay them overtime, exempt employees may cost more than non-exempt employees because they're usually more experienced than non-exempt employees and may be tasked with more responsibility. Often, this means they can demand a higher rate of pay than non-exempt workers.
Employers often mistake workers as exempt simply because they receive a salary rather than hourly wages. However, salary alone is not enough. The employee must meet all three tests.
Misclassifying employees as exempt can lead to fines from the Department of Labor, as well as owing back pay, overtime, payroll taxes, and retroactive benefits to employees.
To ensure you're classifying employees correctly (and ensure your classification can withstand DOL scrutiny):
Misclassifying employees as exempt is a costly mistake, and all it takes is one complaint by a disgruntled employee to find your business being audited by the DOL. If that happens, you want to be sure that your employees have been correctly classified, you've paid all wages due to them, and you have records to back it up.
by Janet Berry-Johnson
A freelance writer with a background in accounting and income tax planning and preparation for individuals and small ...
By knowing what other trademarks are out there, you will understand if there is room for the mark that you want to protect. It is better to find out early, so you can find a mark that will be easier to protect.
May 11, 2023 · 4min read
Writing a will is one of the most important things you can do for yourself and for your loved ones, and it can be done in just minutes. Are you ready to get started?
May 11, 2023 · 4min read
It's easy to create a new LLC by filing paperwork with the state. But to set yourself up for success, you'll also need to think about your business name, finances, an operating agreement, and licenses and permits. Here's a step-by-step guide.
September 5, 2023 · 13min read