If you have had a job, you’ve probably heard about ‘Exempt’ and ‘Non-Exempt’ employment statuses. The problem is that most people don’t know what it actually means to be Exempt or Non-Exempt….or why you would get selected for one or the other category. Even in the HR world there are so many misconceptions. I’ll start with the biggest one.
Exemption Status has NOTHING to do with Salary versus Hourly pay types. You need to mentally separate that in your mind. Salary is when you receive an annual amount of pay throughout the year, paid in 24 or 26 installments, typically. Companies that pay every other week pay 26 installments, and companies that pay twice per month (like the first or fifteenth of the month) are 24 installments. Hourly pay is exactly that, you get paid a set amount for every hour worked, and however many hours that is within the pay period is how much you get paid.
Now let’s talk about where exemption comes in. Regardless of whether you are a salaried employee or an hourly employee, the actual work you perform determines whether you should be paid overtime pay at 1.5 times your hourly rate for any hours over a certain threshold (which is different for federal and state). For salaried people that’s typically the salary divided by 2080 to get your hourly pay amount. Typically this can be either any time over 40 hours per week, or any time over 8 hours in a day, sometimes both. In some states, any hours worked over 12 in a day are treated as double times (2 times the hourly rate).
You can be salaried and non-exempt – which means you make an annual salary but if you work overtime you get paid 1.5 times the hourly calculation of your annual pay, in addition to your salaried. This isn’t typical and it can be a bit hard to manage, the point is it doesn’t matter if you are salaried, it matters what you do for a living that qualifies you as eligible to receive overtime (non-exempt) or not eligible to receive overtime (exempt).
Unfortunately, some employers think if they make you salaried, that means you don’t have to be paid overtime. Sometimes they think your job title sounds fancy, or you make a lot of money, and therefore you are no longer eligible for overtime pay. That would be a negative.
Depending on the kind of work you do, the amount of judgement you exercise, how much you get paid, and the significance or impact of your work on the business itself, can determine whether overtime should be paid. There are multiple categories and questions to answer to determine each job, and it can’t be based on the job title or even the written job description, but rather on the actual work being performed by the employee. Computer operators have a different threshold for meeting exemption than administrative positions. First Responders and investigators have a different threshold, too.
At Power3, we’ve created a questionnaire that can be completed by the manager and/or the employee, that helps determine exemption status. Every audit we’ve had, we have found improperly categorized employees. The real issue comes when someone figures it out, because it can mean a huge audit, fines by the Department of Labor, and not only paying all past-due unearned wages for employees that should have been paid overtime, you can actually be required to pay liquidated damages equal to the amount not paid to the employee. We’ve seen employers owe over $50,000 for each affected employee for 3 years of incorrect classification, and then another $50,000 in liquidated damages.
We strongly encourage that you look at how you are classifying your employees, and conduct an internal audit before it gets worse. Often times companies that figure this out on their own and take measures to correct the issues and pay back wages to the employees aren’t fined and aren’t required to pay additional liquidated damages.
Contact Business@power3.com if you’d like us to assist you with an audit!
