Did you know that just because you are paying an employee on a salary basis, it does not immediately make that employee ineligible for overtime? The crucial distinction is whether the employee is exempt or non-exempt from wage regulations that cover overtime. The employer’s method of payment such as hourly, salary, or commission, is only one element of the exempt classification.
To be considered exempt, an employee’s actual job duties must meet very specific criteria. Most white collar or office job exemption criteria include the requirement that the employee be paid a minimum salary of not less than $455 a week (note that it is higher in some states). That predetermined salary cannot be reduced because of variations in the quality or quantity of the employee’s work except in specific situations. This is another part of the complex landscape employers must navigate when thinking about wage and hour classifications.
You might be asking “why do employers need to figure this out?” The Fair Labor Standards Act, or the FLSA, established federal minimum wage and federal overtime pay requirements for employees throughout the country. It also defines different kinds of employment relationships, imposes regulations on record keeping, and limits the employment of minors. The FLSA covers almost all employers and is enforced by the Wage and Hour Division of the Department of Labor (“DOL”).
The FLSA was passed by Congress in 1938 and has been amended several times over the years. Many expect updated exempt classification regulations will be developed or in effect by 2016. However, many states haven’t waited for the Federal Government to update their regulations and have instead passed wage and hour laws that require employers to comply with higher standards. For example, many states have their own minimum wage, additional overtime laws, or more stringent criteria for exempt classifications. Many states also have wage regulations on subjects not covered under the FLSA such as reporting time, paid sick leave, or split shift pay.
Keep in mind, these regulations are applicable to the employee and employer relationship. The FLSA does not apply to non-employment relationships such as independent contractors, interns, and in certain circumstances volunteers.