Are your employees classified correctly according to the Fair Labor Standards Act (FLSA)? If not, your business may be subject to severe financial consequences, including hefty fines and payment of back wages. To ensure your employees are classified properly, keep reading to learn the difference between exempt and nonexempt employees.
Pay requirements for nonexempt employees
Most employees actually fall under the nonexempt status under the FLSA guidelines, which set the minimum wage as well as regulations regarding deductions, expenses, overtime, uniforms, breaks, and meal periods.
These employees must earn at least the federal minimum wage of $7.25 per hour, effective since July 24, 2009. Many states, including California, and certain local municipal governments have set a minimum wage that differs from the federal standard. Protocol for proper pay mandates businesses must pay nonexempt workers whichever rate is highest.
In California, the state minimum wage is $10.50 per hour. However, many cities have implemented much higher wage requirements. San Francisco and Emeryville employers, for example, must pay their nonexempt employees at least $15.20 per hour if the employee 56 or more workers. This may sound steep, but the financial consequences of ignoring FLSA standards can be far greater. If you’re a California employer, please refer to our list of municipal minimum wages to make sure you’re in compliance with wage laws.
In addition to minimum hourly pay, nonexempt employees must receive overtime pay for every hour worked over 40 in a given workweek and equal to no less than one and a half times the regular pay rate. Employers are not required to pay time and a half on weekends, holidays, or regular days of rest, unless hours worked on those days were overtime.
Pay requirements for exempt employees
Exempt employees are generally white-collar workers earning a salary and who are expected to make independent decisions based on their best judgment and knowledge rather than following a strict set of predetermined protocols. Exempt positions fall under three broadly defined categories: executive, professional, and administrative. Specific examples can include doctors, lawyers, STEM workers, salespeople, computer professionals, or professors and teachers.
Of course, these profession categories are just a rule of thumb. For an employee to qualify for exempt status, they must meet all requirements of the FLSA’s three-pronged employee exemption test, which includes the salary level test, salary basis test, and duties test.
However, even though workers are paid a salary, their status is still subject to minimum wage laws. In California, for example, employees meeting the criteria for exemption must earn at least two times the minimum wage for full-time employment each month. While certain cities have higher minimum wage requirements than the state, the minimum salary threshold is calculated using the state minimum wage, ignoring individual city rates.
It is also important to consider the changing nature of a position’s responsibilities and function. An employee that was once considered exempt may need to be reclassified as nonexempt if their duties have changed.
While you may think determining employee exemption status is relatively easy, unclear job functions and changes to state laws may complicate matters. It is always best to seek the guidance of legal counsel and seasoned HR professionals.
If you’re a small to medium-sized business owner or are just starting your own company, please contact our HR professionals at RTR Consulting.
We help our clients meet the requirements of the FLSA, by reviewing positions’ exempt/non-exempt status, job descriptions, job analysis, as well as overtime policies and procedures. RTR Consulting utilizes the most current regulations as well as the Department of Labor information to provide best practice recommendations for position classifications.