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Feature:
Exempt vs. Non-Exempt Employee Classification Under the Law
What is the exemption status of your employees? Misclassifying employees as exempt when they are in reality non-exempt can lead to major fines and penalties. The Department of Labor (DOL) is the agency generally tasked with enforcing FLSA exemption standards. The DOL estimates that nearly 70% of employers are in violation of the Fair Labor Standards Act (FLSA). So it's not surprising that the DOL hired 250 new auditors last year and is hiring many more new investigators this year. In this environment, employers need to be certain that all employees are properly classified under the law.
The general rule regarding the exempt vs. non-exempt classification is pretty straight forward, “under the FLSA, almost all employees are non-exempt unless they are covered by a specific exemption and earn $455 per week or more”.
The specifics are more complicated. Some classes of employees (such as outside sales rep’s) are exempt and do not have to pass the $455 per week minimum. However, for all practical purposes all others have to meet one of the following exemptions and meet the $455 earnings test:
- Executive Exemption
- Administrative Exemption
- Professional Exemption
- Computer Exemption
To determine the exemption status of a given job, the employer must conduct what is known as a “duties test”. The FLSA specifies within the law what duties must be performed to obtain each specific exemption. Generally, a detailed job analysis is required to determine the requirements of the job and whether or not the duties of the job rise to the level of classifying the job as exempt.
The general factors that tend to have the most weight by exemption are:
- Regular exercise of discretion and independent judgment -- (Administrative Exemption)
- Impact on the business of decisions made and actions taken-- (Administrative Exemption)
- Duties directly related to management or general business operations-- (Administrative Exemption)
- Authority to hire and fire -- (Executive Exemption)
- Directing the work of two (2) or more employees-- (Executive Exemption)
- Actively engaged in management-- (Executive Exemption)
- Work performed requires advanced knowledge -- (Professional Exemption)
- Knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study -- (Professional Exemption)
- The application of systems analysis techniques and procedures -- (Computer Exemption)
- The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs -- (Computer Exemption)
Before starting your job analysis, it is helpful to have a position description or other written record of the job that specifies the duties and responsibilities of the position. It is also helpful to have a management panel of two or more professionals trained in FLSA regulations review each job and document the results of their analysis. Ultimately, if there is a problem down the road, the FLSA will make its own determination regarding the exemption status of jobs under review. However, having documentation of a good faith effort made by trained professionals knowledgeable about the job will have a positive influence on the FLSA’s ruling, and in particular will help reduce or eliminate the fines and penalties associated with a “willful violation”.
In today’s increasing complex legal environment and in the current era of increasing inspections, fines and penalties, it is in your organization’s best interest to be confident in the exempt vs. non-exempt classification of every job.
Philip A. Davis is Senior Vice President of Flex HR, Inc. For more information, contact Phil at pdavis@flexhr.com or 6768-977-5578. |
