True or False? Test Your Exempt or Non-Exempt IQ.
One of the most confusing areas in the Fair Labor Standards Act (“FLSA”) law is regarding the classification of employees as exempt or non-exempt. Misclassifications are the most common FLSA mistakes made by employers. Answer these True or False statements to test your FLSA classification knowledge. How well will you do?
Before you begin, here is a basic review:
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Non-exempt employees:
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Exempt employees:
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TRUE OR FALSE: All salaried employees are exempt.
FALSE – Some employers make the mistake of assuming simply because an employee is paid a salary, is called “salaried” or exempt, or has a professional title, the employee will be exempt from overtime pay. This is false! Many non-exempt employees are paid salaries such as secretaries, receptionists, and assistants. Similarly, giving the employee an important-sounding title such as “Vice President of Sales” or “Administrative Assistant” will make no difference if the employee’s duties do not satisfy the Department Of Labor’s (“DOL”) criteria found in its duties test for an exemption category. In short, the DOL and court care about actual job duties, not how a person is paid or what they are called. Therefore, employers need to review actual job duties to determine whether employees should be classified as exempt or non-exempt.
TRUE OR FALSE: My employee likes the status of having an exempt position and agrees the salary she is paid covers all the time she works, thus she is exempt.
FALSE – By law, an employee cannot waive their right to be non-exempt if their job duties don’t meet the requirements for an exempt status. Regardless of the amount of salary, and regardless if the employee agreed that the salary covers both overtime and non-overtime hours, if the employee’s job duties don’t meet requirements for exempt status, the DOL and the court will rule that the employer must pay overtime. Therefore, it is not a defense to claim the employee wanted to be exempt. Employers need to guard against misclassification by careful use of exemptions.
TRUE OR FALSE: They’re contractors, so they don’t get overtime.
TRUE – It is true that independent contractors aren’t entitled to overtime, since contractors are not employees and therefore not covered by the FLSA. However, it takes a lot more than a contract and calling someone a contractor to be legally classified as an independent contractor! What matters is the underlying nature of the work relationship and whether that relationship falls under the DOL’s definition of independent contractor. There is no way to contract around paying overtime if workers are truly non-exempt employees and work more than 40 hours a week. Employers must be familiar with the various DOL tests to determine whether a worker is an employee or an independent contractor.
TRUE OR FALSE: The job requires the employee to be a “rule maker,” thus she is exempt.
TRUE – A general rule of thumb is that if the employee spends most of their time exercising discretion and independent judgment and makes rules and policies regarding matters of major significance, they are likely exempt. On the other hand, if the employee usually follows procedures and policies instead of having the authority to create new ones, the job is likely non-exempt.
TRUE OR FALSE: My employee is non-exempt, but he doesn’t mind working off the clock and answering the telephone while he eats lunch at his desk, so I don’t have to pay him for time he chooses not to record.
FALSE – Again, there is no such thing as “waiving” rights to overtime, including volunteering to work “off the clock.” Nonexempt employees must be paid for all the time they work, including if you interrupt them during their lunch period (even if they are at their desk). If an employee eats lunch at their desk and answers the phone, then the entire meal period may be compensable working time. CAUTION: Often employees do not complain about this time until they are fired or become disgruntled, and by then it is too late for the employer to stop the work from being done! Employers must ensure that all non-exempt employees properly record all time worked and that they are paid for all such time.
TRUE OR FALSE: The company doesn’t have to keep track of hours worked for exempt employees.
TRUE – The FLSA only requires employers to maintain detailed records of hours worked by each non-exempt employee, but if your employee is misclassified and you provide no time records to show how many hours the employee actually worked, the DOL and the courts will accept the employee’s records as valid unless there is a good reason to doubt the credibility of those records. Therefore, it is a good practice to keep track of hours worked for all employees, including those that are classified as exempt.
Please contact the head of GDHM’s Employment Law group, Susan Burton, at [email protected] or 512.480.5738 for more information about the FLSA laws regarding classification of employees, or any other employment law related questions.
Notice: We are providing this client alert as a commentary on current legal issues, and it should not be considered legal advice, which depends on the facts of each situation. Receipt of this client alert does not establish an attorney-client relationship. The listed attorneys and / or other attorneys may provide services in connection with a particular matter.