In recent posts, we have discussed the differences between employees and independent contractors. Once you’ve determined that a worker is an employee, the next step is to determine whether they are exempt or non-exempt from FLSA minimum wage and overtime pay requirements. The Fair Labor Standards Act requires employers to pay non-exempt employees for overtime hours at a rate of one and a half times their regular pay and defines “overtime” as more than 40 hours worked in a workweek.
Properly classifying employees as exempt or non-exempt is the cornerstone of complying with the FLSA. Misclassification is one of the most common grounds for lawsuits against employers. Fines, penalties, and back pay for FLSA violations can add up to an enormous, sometimes crippling, sum that may far surpass the cost of paying overtime. Further, back pay owed to employees who were misclassified can be doubled as a means of bolstering compliance with the law.
KNOW THE DIFFERENCE
The first tip to ensure that your company does not encounter a misclassification problem is to be knowledgeable about the differences between exempt and non-exempt employees. With few exceptions, an exempt employee must (a) be paid at least $23,600 per year ($455 per week), (b) be paid on a salary basis, and also (c) perform exempt job duties. Most employees must meet all three “tests” to be exempt. Exempt job duties include: executive, administrative, learned professional, creative professional, computer science, and outside sales. For more information on a specific exempt job duty, click HERE. In addition, highly compensated employees performing office or non-manual paid in excess of $100,000 are exempt if they customarily perform one of the mentioned duties.
IMPLEMENT YOUR KNOWLEDGE
Once you have developed a thorough understanding of the differences between exempt and non-exempt employees, here are a few additional steps to help protect your company from FLSA exposure:
1. Conduct an extensive self-audit to ensure that all employees are properly classified by using the tests mentioned above.
2. Train managers on wage and hour regulations, and explain how errors can negatively affect the company. Also, remind them that they are accountable for the proper management of their department(s)/employee(s), and wage and hour compliance is part of their duties.
3. Educate your staff about company rules pertaining to overtime, proper use of the time clock, meal and rest periods, and all other wage and hour-related items.
4. Determine repercussions for employees who fail to follow the company rules in this area, and educate the staff on them.
5. Take all wage and hour complaints seriously and immediately correct any errors.
6. Be careful when new positions are added, especially if they are added as a result of mergers or acquisitions. If the previous company misclassified its employees, you may be responsible even though the merged or acquired entity may no longer legally exist.
OHIO LAW
Under Ohio law, employers grossing more than $150,000 per year are required to pay overtime to non-exempt employees at a rate of one and a half times the employee’s wage rate for any hours worked over 40 within one workweek. Employers grossing less than $150,000 are not required to pay overtime for hours worked beyond 40.
In most circumstances, the employer should follow the rule that is most advantageous to the employees when federal and state laws differ. For instance, the current federal minimum wage is $7.25 per hour, but the current minimum wage in Ohio is $8.10 per hour. This means that Ohio employers must use the state minimum wage of $8.10, as this is most advantageous to employees. Thus, the minimum overtime rate in Ohio is $12.15 per hour. However, if the employer grosses less than $297,000, it may use the federal minimum wage as a basis for paying overtime.
It’s imperative for those operating businesses outside of Ohio to know if your state has any specific wage and hour regulations, what those regulations are, and how to properly apply them to avoid unnecessary claims.
CONCLUSION
Determining an employee’s exemption status isn’t always simple. It pays to know the rules ahead of time and understand why each employee is classified as exempt or non-exempt because the wrong classification can trigger a painful inquiry from the IRS and the Ohio Department of Labor, as well as other fines and penalties. Following these tips will help you to stay ahead of the game, and ensure that your employees are properly classified — saving your business a huge chunk of change!
Alex Gertsburg is a managing partner at Gertsburg Licata. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A, and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
