Are you Paying your Employees Appropriate?28 Mar, 2006 By: Dennis Abraham imageSource
Are you Paying your Employees Appropriate?
The Fair Labor Standards Act (FLSA)—every
business owner is familiar with this law that requires workers be paid at least
the federal minimum wage for all hours worked.
But the aspect of this 54-page act that business principals have the least
amount of understanding are the regulations that define "exempt" and
"non-exempt" employee status. The most common question posed about this portion
of the legislation is which job functions meet the criteria of exempt?
An extraordinarily important point here is that the criteria is based on job
function—not job title. For a position to be exempt from FLSA overtime
regulations, two factors—salary level and job duties—must meet criteria
established by the regulations. These criteria are referred to as the "salary
basis" and "duties" tests.
The following three requirements must be met for a position to be exempt from
The employee must be paid on a salary (not hourly) basis, except for certain
computer workers. This means that even if an employee doesn’t work the full week
they get paid for the full week.
The employee must be paid at least $455 per week, regardless of percentage of
The position's job duties must meet the duties test for one or more of the
The FLSA specifically provides several job categories that may be considered for
* Learned or Creative Professional
* Computer Professional
* Outside Sales
* Highly Compensated
Of these, administrative causes the greatest confusion and holds the greatest
Each job function listed above has specific criteria for them to meet the test
of exempt classification. The mere fact that an employee is given a title
classified by an employer as exempt and paid on a salary basis does not
automatically remove that employee from the protection of the FLSA.
The determining factors include whether the primary duties and responsibilities
of the employee comply with applicable federal standards and are commonly
associated with management.
There are two recent cases that make this point. A national chain of bagel
restaurants was ordered to pay $495,930 in back overtime wages to assistant
managers in several states following an investigation by the U.S. Department of
Labor's Wage and Hour Division. They also paid an undisclosed amount in fines
and penalties. The company now pays these managers on an hourly basis.
More recently, a Florida law firm filed a nationwide class action lawsuit
against Radio Shack for violating federal law by misclassifying employees as
store management to avoid paying overtime as required by the FLSA. This suit is
still winding its way though the judicial system; however, it could cost Radio
Many HR issues are glossed over by smaller companies, but the FLSA is a matter
that needs to be taken seriously. There is no faster way to get employees crying
foul than to make a mistake with their pay. Failure to comply could result in
audits, enforcement of overtime back pay, and even fines and penalties.
If you understand it, do it correctly. If you need help, get it!