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Exempt vs. Non-Exempt: A Common Dilemma for
Employers |
Issue:
Every employer, at one time or another, has asked two very
important questions. Which employees are exempt and which are
non-exempt? Why? Getting the correct answers to these questions
can mean the difference between operating your business in an
orderly fashion or possibly exposing the company to time
consuming and expensive litigation.
In a recently publicized case in California, a company agreed to
pay $8 million in settlement for failing to pay overtime to
employees who were improperly classified as “exempt” from
overtime laws. Under California and federal wage and hour rules,
employees are exempt and don’t have to be paid overtime if their
duties fall into one of four main categories: managerial,
administrative, professional or sales. Unfortunately, the
company’s problem was similar to that faced by many employers
who have employees who are managers and assistant managers who
often perform the same work as other employees. The court found
that in some instances the company had incorrectly classified
its managers even though the employees did meet several of the
criteria for the managerial exemption. These included: managing
all or part of a business, having the authority to hire and
fire, to exercise discretion, and to make important decisions,
but did not take into consideration the number of people that
the managers directed, and the amount of time they devoted to
actual management activities.
Effect On You:
Most employers can avoid classification problems by being
aware of and understanding the laws covering exempt and
non-exempt employees. The Fair Labor Standards Act [FLSA]
establishes criteria for employees in the private sector as well
as Federal, State, and local governments. The Wage and Hour
Division of the Department of Labor [DOL] administers and
enforces FLSA with respect to employees in the private sector as
well as many government workers. As noted in the DOL publication
“Employment Standards Administration Wage and Hour Division
Handy Reference Guide”, some employees are exempt from the
overtime pay provisions or both the minimum wage and overtime
pay provisions of The Act. Detailed information is usually
available from local Wage-Hour offices which are listed in most
telephone directories under U.S. Government, Department of
Labor, Wage and Hour Division. Since most states also have laws
that cover exempt and non-exempt employees, the general rule is
that you must follow whichever rules are more beneficial to your
employees.
Consider This:
Correct classification of employees can help employers avoid
costly and time-consuming problems. Simply giving an employee an
impressive title or putting the employee “on salary” does not
make the employee exempt.
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