It is a recurrent challenge for human resource professionals: Determining whether an employee is exempt from the overtime requirements of the Fair Labor Standards Act (FLSA). The FLSA is the federal law that governs minimum wage, overtime pay and working hours. Consequently, the classification criteria for exempt and nonexempt workers are part of that law. It is the employer's responsibility to determine whether to classify an employee as exempt or nonexempt under the FLSA. The key consideration: Exempt workers aren't eligible for overtime pay. Rather, they're paid for the job they do, not the hours they keep.
I have often seen practices classify an employee as "salaried" with the belief that they then do not have to pay overtime to this employee. However, it is not nearly that simple. Recently there was an article in the Wall Street Journal ("Can You Sue the Boss for Making You Answer Late-Night E-mail?") discussing the legalities of overtime pay for employees who answer late-night e-mails and texts over the weekend. To comply with the FLSA, employers need to regularly review their employee classifications. Generally, two requirements must be met to classify an employee as exempt: 1) they must earn a salary and 2) hold a position with duties the U.S. Labor Department designates as appropriate for exempt positions.
Employees whose jobs are governed by the FLSA are either "exempt" or "nonexempt." Nonexempt employees are entitled to overtime pay. Exempt employees are not. Most employees covered by the FLSA are nonexempt. For most employees, however, whether they are exempt or nonexempt depends on (a) how much they are paid, (b) how they are paid, and (c) what kind of work they do. These requirements are outlined in the FLSA Regulations (promulgated by the U.S. Department of Labor). Most employees must meet all three "tests" to be exempt: salary level test, salary basis test, and the duties test.
The differences between exempt employees and nonexempt employees can cause a lot of confusion for both workers and employers. Whether or not you are entitled to minimum wage and/or overtime pay for working more than 40 hours per week depends on your exemption status, as governed by FLSA. The FLSA regulations concerning salary basis employees require at least a minimum of $455 per week for consideration as a salaried employee. Some states have a higher minimum weekly wage for salaried employees. To complicate matters further, many states have wage and hour laws that may have more requirements than the FLSA. Employers must make sure they abide by both federal and state wage and hour laws to avoid legal trouble.
Furthermore, there are other issues to consider such as employee comp time and breaks. Although there are exceptions, it's usually illegal to give nonexempt employees comp time (time off) instead of paying them overtime. Employers also need to make sure they follow federal and state law requirements regarding breaks, including meal breaks, for workers. The FLSA doesn't require meal or rest breaks, but many states have laws that do. For breaks to be unpaid, the employee normally must be relieved of all work duties. Rest breaks of less than 30 minutes must be on the clock.
It is extremely important to take the time to periodically review the classification of your employees. To help in that endeavor, there are free FLSA exemption test questionnaires on the Internet. However, there are many nuances to consider as it relates to your particular practice and you should have a qualified individual carefully review your employee classifications.