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Avoiding the Exempt/NonExempt Employee Trap
Under the FLSA employers must pay "any non-exempt" employee (those not specifically exempted from the rules) overtime pay at a rate not less than 1 + times the employees regular pay rate for hours worked in excess of 40 in a work week. Overtime pay is not required for employees who qualify for one of the exemptions enumerated below.
Some employers wrongly believe that simply labeling an employee as "salaried" is sufficient to justify classifying the employee as "exempt" under the FLSA and, therefore, not eligible for overtime pay. It is true that any employee must be paid on a salary basis in order to qualify for the "white collar" exemption but it is not true that salaried status is all that is required; other criteria specified in the statute must also be satisfied before the exemption will apply. A salaried employee who does not satisfy the other requirements is not exempt and therefor must be given overtime pay for hours worked in excess of 40 in a workweek.
One of the most important, and often the most misunderstood, of the FLSA exemptions is the one that applies to "white-collar" employees--i.e., those individuals whose salary status and job duties qualify them as executive, administrative, or professional employees.
The Salary Test. Only "salaried" employees qualify for the white-collar-exemption. Generally, in order to be considered "salaried", an employee must regularly receive a predetermined amount of pay that is not dependent upon the quantity or quality of the employee's work. Also, the employee must receive his or her full salary for a workweek in which the employee performs any work, regardless of the number of days or hours worked. However, the FLSA regulations do permit pay deductions in the following circumstances:
for absences of a day or more for (1) personal reasons other than illness or
accident or (2) sickness or disability but only if the deductions are made pursuant to a bona fide sick pay plan or policy
as a disciplinary measure for infractions of safety rules of major significance (i.e., prevention of serious danger)
if the employee performs no work during a given workweek
The regulations specifically prohibit deductions for absences occasioned by jury duty or testimony as a witness or if the employee is on temporary military leave,
Deductions from salary for absences of less than a day are not permitted. Simply having a policy permitting such deductions--whether or not any employee's pay is ever actually docked--may result in loss of the exemption for the entire group of employees.
The Job Duties Test. In addition to the salary test, an employee must satisfy a job duties test in order to qualify for the white-collar exemption. The FLSA regulations provide a method for determining whether an employee satisfies the job duties test in one of the three white-collar categories(executive, administrative, or professional). The following rules apply:
1. For executives:
2. For administrators:
3. For professionals:
Primary duty: The employee's primary duty must be to perform work requiring advanced study in a specialized field or original and creative work in a recognized field of artistic endeavor that depends primarily on the employee's invention, imagination, or talent or work as a teacher in an educational establishment.
Discretion: The employee must consistently exercise discretion and independent judgment.
Work will generally qualify as an employee's "primary duty" if more than 50 percent of the employee's time is spent performing such work, although other factors are also important in making that determination (e.g., the importance of the work relative to other work duties of the employee).
The rules for determining when an employee qualifies for the white-collar exemption are fact-intensive and, in may cases, quite ambiguous. In addition, the Wage and Hour Division of the Department of Labor (DOL), the agency responsible for enforcing the FLSA often takes an inconsistent approach in applying the rules. In one case, it may focus on the salary test but, in another case, give primary consideration to the duties test.
What can you do to find your way through the fog and implement policies that will not result in an FLSA violation? Following a few basic rules of thumb will help you reduce the chances of costly litigation or possible civil or criminal penalties for FLSA violations.
Take time to evaluate how you classify exempt and nonexempt employees.
Be sure that the job descriptions for exempt employees satisfy the appropriate job duties test in the regulations. Remember educational credentials and job titles by themselves mean nothing: it is the employee's job description (which should correspond with actual job responsibilities) that is important.
Avoid actions that may jeopardize an employee's exempt status. Just one practice can transform an otherwise exempt employee into a nonexempt employee. Examples of questionable employment policies include the following:
Any payment policies that may be construed as hourly rather than salary—For example, it may be dangerous to require exempt employees to work a specified number of hours per day.
Reducing an exempt employee's pay for impermissible reasons--Any deductions not expressly permitted in the regulation may be suspect.
Paying exempt employees "overtime" pay or bonuses for working extra hours--While some courts have ruled that this practice does not affect an
employee's exempt status, others have suggested that it might.
Remember also, no exempt employee can earn less than $250 per week
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