Employers often think that "Salary" is synonymous with "Exempt," but there is a stark difference between the two. One of the most common misconceptions that we as HR professionals find ourselves clarifying is whether paying an employee salary means that they are exempt employees. Not only is it very common for employers to think this way, but misclassifications are a frequent and very costly error.
States and the Federal government have task forces cracking down on these misclassification errors. If your company is found to have misclassified employees, you could be liable for back pay, missed overtime, taxes, penalties, interest, and attorney's fees. simplyHR has known companies that have paid on the upwards of $15,000 for misclassifying employees (ouch!).
One of the most prominent examples of misclassification was a class-action suit lasting 5 years involving a coffee company whom many of us know and love. It resulted in the company paying $3 million in back wages including pay for overtime and missed meals.Many states including Colorado and California have requirements for non-exempt employees to take meal and rest periods.. In a nutshell, the company had Assistant Managers, paid a salary, but not meeting all of the requirements to be classified as exempt. In total, that company has paid $18 million over several misclassification suits.
So how do you know if your employees are classified correctly? The Fair Labor Standards Act (FLSA) outlines the differences between exempt and non-exempt employees. There are several categories of exemptions: Administrative, Executive, Professional, Computer Professional and Highly Compensated. There are not only specific salary requirements for exempt employees but also duties tests that must be met before an employee should be classified as exempt.
Because "salary" or "hourly" only addresses how employees are paid, exempt and nonexempt are not necessarily correlated with salary. If you have any questions, comments, or concerns, simplyHR is here and happy to help you determine which classification might be best for your employees.
Effective December 1st, the Department of Labor is increasing the salary threshold for all exempt employees. simplyHR will be presenting on the New Overtime Rule and requirements for exempt employees at the Larimer Small Business Development Center in Fort Collins, Colorado on November 11, 2016. This presentation is free of charge, and seating is limited. To register, follow this link: https://clients.coloradosbdc.org/workshop.aspx?ekey=80360201. We hope to see you there!
simplyHR is an HR consulting firm located in Fort Collins, CO. Servicing companies in all 50 states, our goal at simplyHR is to provide training, education, partnership, and resources to make Human Resources simple for small businesses. We love HR so you can love what you do!
The content of this website provides practical and HR best practice information and is not legal advice. simplyHR LLC does not provide legal advice or other professional services. While every effort is made to provide accurate and current information, laws change regularly and may vary depending on the state and/or the municipality your business operates in. The information provided from simplyHR is provided for informational purposes and is not a substitute for legal advice or your professional judgement. You should review applicable federal, state and municipality laws in your jurisdiction and consult with legal counsel as you deem necessary.