Status Classification: Exempt vs. Nonexempt

HR Resource
April 9, 2013 — 2,437 views  
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The minimum wage and over-time provisions of the Fair Labor Standards Act (FLSA) are enforced by the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL). The department is dedicated to getting employers in line with FLSA regulations. This is shown by the fact that the WHD has recovered unpaid wages amounting greater than $1.25 billion for workers numbering close to 2 million since the year 2000. These numbers do not take into account the fines levied on erring employers, which, if included, amount to much more.

These numbers are more than enough for employers to respect the FLSA. Employers need to comply with FLSA regulations on three counts: exempt and non-exempt employees, overtime calculations, and hours worked.

Exempt vs. Nonexempt

Employers need to prove that those employees who do not get paid overtime are exempt from overtime pay. FLSA regulations dictate that all non-exempt employees be paid at least minimum wages mandated by the government for normal working hours, and one and half times their wages for working every hour more than the normal 40 hours a week.

Proving employees are exempt from overtime pay is done by first assessing an employee's job responsibilities, amount of pay, and how it is paid. These must be compliant with the FLSA's regulations for exempting overtime pay. If the employees are non-exempt, yet are not paid overtime, the Department of Labor will eventually collect the back wages along with fines for incorrect classification and non-payment by the employer.

Number of Working Hours

Though the definition of “working hours” is not specified by the FLSA, the U.S. Supreme Court has ruled that working hours is defined as the amount of hours per week spent in mental and physical work done under the employer's directions. Working as required by the duties given by the employer, even if not directly authorized, is also part of the working hours. This includes meal times, travel times, or even waiting times required to accomplish the task set by the employer, as well as any time permitted to be spent working for the employer's benefit in general, whether it is at the employer's premises or outside of it.

The FLSA dictates that it is the duty of employers who are aware of such overtime work, to compensate the respective employees, whether it is expressly asked by the employees or not. If they do not want employees to perform overtime work, employers are permitted to prohibit it, rather than not pay employees for unauthorized work done overtime.

Calculating Overtime

The FLSA accepts overtime pay being calculated as one and half times an employee's hourly pay multiplied across the number of hours worked over 40 hours in a week, but only in the absence of other factors affecting the employee's pay, such as bonuses and incentives among others. There are rules and exceptions for including these as well. Conventionally, the FLSA recommends calculation of regular pay as the weekly pay of an employee over normal hours, divided by the number of hours worked. This will arrive at a figure that is composed of an employee's hourly pay and other DOL allowed payments, if any, which will then be multiplied one and half times to arrive at hourly overtime rates for the employee.

Employers aiming to avoid audits by the Department of Labor need to strictly heed to these FLSA regulations for classifying and paying employees, failing which, not only will the due pay be reimbursed to the employees, but employers will also face fines.

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