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Exempt vs. nonexempt: What’s the big deal?

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Crystal Spraggins, SPHR

In a 2013 study, NERA Economic Consulting reported that U.S. employers paid $467 million in settlements as a result of wage and hour violations. NERA classified the violations in the following categories:

  • Overtime
  • Off-the-clock
  • Minimum wage violations
  • Donning and doffing (i.e., putting on and removing work gear)
  • Missed meals and breaks
  • Misclassification
  • Tip pooling

Under the Obama administration, the Department of Labor (DOL) has been very open in its intent to aggressively stamp out wage and hour abuses, and while recent press has focused on misclassification of employees as independent contractors (the DOL’s FY 2013 budget includes $14 million toward detecting and deterring this particular problem), employers should still be very concerned about other types of misclassifications—such as misclassifying nonexempt workers as exempt—because there’s no question that the DOL will continue its efforts to target these cases, even while maintaining its focus on independent contractors. Consider that just a few months ago, Family Dollar, which had been accused of incorrectly classifying 1,700 managers as exempt, reached a $14 million dollar settlement with the DOL.

But lest we put the cart before the horse, here’s a brief (very brief) rundown on the situation.

Exempt or nonexempt? What’s the difference?

Under the FLSA, employers are allowed to exempt certain workers from the minimum wage and overtime provisions of the law, provided the workers’ jobs meet the criteria for exemption. Otherwise, it’s “hours paid for hours worked,” and employees should earn no less per hour than the federal minimum and receive overtime pay at time and one-half the regular rate of pay for all hours worked over 40 in a workweek.

But while that last bit may be clear enough (that is, nonexempt workers have to be paid at least minimum wage and receive overtime pay per the rules), what’s not nearly as clear to many employers is what makes one position exempt and another nonexempt. For example, despite all that’s been written on the topic, some employers still have the idea that merely paying someone a salary renders the position exempt, and of course that’s completely untrue.

Related: Define Your Comp Strategy

Unfortunately, all the differences between exempt and nonexempt positions can’t be summed up quickly, and that’s why it’s important for employers to hire qualified help to properly determine positions as nonexempt or exempt under the DOL’s learned professional, administrative, executive, computer employee, or outside sales classifications.

Other considerations

But besides the legal considerations, there are other reasons an employer should want to get classification right.

For starters, failure to pay employees all the monies due for work performed is unethical as well as illegal and no way to garner or maintain trust in a relationship. Granted, the DOL regulations don’t make compliance easy, but again, that’s where competent help comes in. If your organization is too small to warrant a full- or even part-time HR professional on staff, by all means hire a consultant to perform a classification audit.

Related: When and How to Hire a Compensation Consultant

Secondly, it’s much better to be proactive than reactive when it comes to wage and hour issues. With the internet, employees are more aware of their rights than ever. A single phone call from a disgruntled employee could leave all your personnel folders open to DOL scrutiny, and you definitely don’t want that.

So make no mistake, exempt or nonexempt is a very big deal, and there are excellent reasons for employers to believe that and act accordingly. I’m guessing Family Dollar wishes they had.

 

2 Comments

  1. 2 Crystal Spraggins 05 Feb

    If I understand your question, you're wondering whether a company can require the employee to use paid leave for partial-day absences, and the answer is yes. What the employer can't do is DOCK an employee for partial-day absences if the employee had no more paid leave.

  2. 1 Raven 17 Jan

    A company requires to put in time off request for doctors appointments and compensates this time with *sick time*. The sick time is being deducted from the accrued sick days. If one needs to leave early the employee is being deducted the pay from the vacation time.

    Now, the company claims the employees are salary however and they do NOT get paid for OT hours. Yet deducted time/wage and compensated with Sick or personal time that was accrued. Is this allowed?

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