August 21, 2015
As press reports make clear, the liability exposure for employers who do not understand how to classify their workers is great. The most common problem is theunfounded belief that an employer has unbridled discretion to classify workers in any manner it sees fit. In fact, the classification depends on the amount of control that the employer exercises, the nature of the employee’s job, and the amount of time spent on various tasks, not on whether the employer wishes to pay the employee overtime.
Determining whether an employee is exempt or non‐exempt is critical to ensuring compliance with the wage and hour laws. Non‐exempt employees are subject to the overtime and minimum wage numerous wage and hour protections provided by the FLSA. Exempt employees are outside the protection of those laws. Erroneous classification in this area will result in substantial fines and costs for wage and hour violations, including costly proceedings and attorneys’ fees for the employee, as well as for your own defense.
Like the presumption that all workers are employees, the government presumes that all employees are non‐exempt and looks with suspicion upon any employee classification identifying the employee as exempt. Merely calling an employee exempt is not enough; the employee’s job functions, compensation, and relationship with the employer must meet the standards set by the United States Department of Labor.
To qualify for a white collar exemption most employees must meet the salary basis test established by Department of Labor regulations. Such employees must regularly receive a predetermined amount of no less than $455 per week each pay period (which must cover
at least a week). Exempt employees may not be paid by the hour, and their pay must not be subject to reduction because of variations in the quality or quantity of work performed. If the employee is ready, willing and able to work, deductions may not be taken for time
when work is not available.
It is not consistent with the salary basis requirement for an employer to make deductions for the quantity or quality of an employee’s work, except in the following limited circumstances:
Employers may deduct pay if an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability.
Employers may deduct pay for one or more full days due to sickness or disability if the deduction is made according to a bona fide plan, policy or practice of providing compensation for salary lost due to illness. If employees are permitted to cash out their sick time, it is not a bona fide sick leave plan.
If a supervisor or manager improperly deducts pay from an exempt employee’s wages, the employee will not lose his or her exempt status, if the employer brings itself within the safeharbor provisions of the Department of Labor regulations. To do so the employer must:
- Have a clearly communicated policy prohibiting improper deductions.
- Include a complaint mechanism in the policy.
- Reimburse the employee for the improper deductions.
- Make a good faith commitment to comply with the salary basis test in the future.
- Not continue to make improper deductions after receiving complaints.