Employers must recognize the classification of their employees. State and federal laws regarding overtime and variable pay schedules depend on those classifications, and there can be trouble if records are inaccurate or absent, altogether.
Employers who fail to classify non-exempt employees correctly are on shaky ground when it comes to compliance.
What is an exempt employee?
The ‘exempt’ in exempt employee signifies that the employee is exempt from the overtime protections in the Fair Labor Standards Act (FLSA). In other words, the employer doesn’t have to pay overtime, generally time-and-a-half their regular rate for weekly hours above 40.
What qualifies for exemption from overtime laws?
The Department of Labor lists several categories of employees who are exempt from overtime laws. This is sometimes called the ‘white collar’ exemption. To be exempt, employees must meet the duties and wage test for all requirements. Remember that it’s the actual job duties that count, not the job title. Note that the salary threshold increase in 2020 did not affect the classification rules.
What is a non-exempt employee?
Any employee that doesn’t meet the salary and duties test mentioned previously must be paid overtime. Most hourly workers are non-exempt. This is far from straightforward. Even if the employer classifies correctly, if they don’t track time properly, they can violate overtime laws. Pitfalls include failing to track rest periods, illegal tip pooling practices, off-the-clock work, and difficulty tracking time for mobile and remote employees.
Case Studies
Zeigler Auto Group paid $85,000 in back wages to 214 employees for misclassifying non-exempt workers, failing to pay minimum wage and neglecting to maintain accurate payroll records. https://www.dol.gov/newsroom/releases/whd/whd20210331
One of the most famous cases of misclassification involved a $50 million judgment against MetLife. The claimants were former Claim Specialists. Up until 2013, these employees were paid hourly. As non-exempt, they were also paid overtime when they exceeded 40 hours a week. According to the plaintiffs, weekly overtime work was common. In 2013, MetLife reclassified the Claims Specialists as exempt salaried employees. Since their job duties didn’t change, MetLife was asking for trouble. The plaintiffs claimed that they continued to work 45-60 hour weeks. The judge agreed that the employees were due overtime pay.
Classification affects more than overtime laws. It can impact benefits eligibility, minimum wage protections, and workers’ comp eligibility. In addition, employers who fail to pay legitimate overtime could face state as well as federal penalties.
The Solution: Automated Time and Attendance
There are three main steps for complying with classification laws:
- Follow the federal and state rules for classification,
- Track every minute worked by all employees regardless of classification, and
- Save all timecards and payroll records.
With Automated time and attendance, you automate employee timekeeping. Employees punch in and out with a hardware clock or mobile app. The software creates and saves virtual timecards so you don’t have to worry about the recordkeeping requirements.
In addition, Automated time and attendance helps you avoid the complicating factors that can trip up employers. These involve meals/breaks, mobile employee oversight, tip tracking, and employee timecard padding.
- Meal/break prompts and early break clock-in lockout
- Schedule enforcement
- Geofencing for mobile employees
- Missed punch alerts
- Tamper-proof virtual timecards
- Audit-ready timekeeping records
Call 941 Payroll today at (877) 941-9419.
