To stay compliant with federal and state labor laws, employers must have systems in place to accurately capture hours worked and payroll records showing that employees were appropriately compensated for those hours.
MarathonHR can counsel you on the optimal classification for an employee. One client recently needed guidance on whether a marketing hire should be exempt or nonexempt since the position required working varied hours, including some weekends and evenings. We reminded them that salaried doesn’t have to mean full-time and the classification is based on work duties, but that overtime pay would apply if classified as nonexempt.
Here are some basics to keep in mind for wage and hour compliance.
Correct employee classification
Employees are classified into exempt or nonexempt status. Nonexempt employees must be paid at least minimum wage and are eligible for overtime pay if they work more than 40 hours in a work week.
Exempt employees are not required to be paid a premium for hours worked over 40. To qualify for exemption status, employees must meet both a wage test and a duties test.
Nonexempt employees are commonly paid on an hourly basis. For these employees, the calculation of overtime is straightforward (i.e., at least 50% of the base pay). This calculation can be complicated by nondiscretionary performance bonuses and other types of pay that can add to the weekly base.
Nonexempt employees may be paid on a salary basis also but need to receive a premium if the hours they work in a pay period exceed 40. There are several legitimate ways of calculating the overtime premium depending on the goals of the business.
It is also important to keep in mind that “Salary Basis” means that the employees received the same compensation for a period of time regardless of the quality or quantity of work produced. Salary reductions can only be done in certain circumstances and care should be taken when making a reduction.
Employers are not required to pay overtime to exempt employees. Exempt employees are commonly paid on a salary basis but can also be paid hourly. Either way, an overtime premium is not required.
Sometimes employees will require accommodations for their hours and work schedule, but that should not impact their classification. As one example, a business requires full-time employees to work four weekdays plus a Saturday. However, they have an employee with a firmly held religious belief that prevents them from working on a Saturday. The employee was given the option of working part-time only and being off on Saturdays but remained classified as exempt.
All employers, large and small, have a responsibility to keep proper records of nonexempt employees’ wages and hours. If you don’t have accurate records, it can be difficult to defend against an FLSA lawsuit.
- Are all of your nonexempt employees paid at least minimum wage?
- Are you paying non-exempt employees overtime if they work more than 40 hours in a work week?
- Is overtime pay calculated correctly by taking commissions, bonuses and incentives into account?
- Are tipped employees notified in writing that tips will be used to make up the difference between their cash wages and minimum wage?
If you have questions about wage and hour compliance, MarathonHR is here to help guide you.