What is an FLSA Classification?
The Fair Labor Standards Act (FLSA) is a federal law that applies to most private and public employees which sets minimum wage, overtime, recordkeeping, and youth employment standards. The FLSA generally requires employers to pay all covered non-exempt employees the statutory minimum wage and overtime pay (“time and one-half”) for hours worked in excess of 40 hours in a workweek (with some exceptions for some industries). More than 143 million American workers are protected or “covered” by the FLSA, which is enforced by the Wage and Hour Division of the U.S. Department of Labor.
However, there are some exemptions to the Overtime Rule under the FLSA. These exemptions are often referred to as white-collar exemptions, as they apply to non-manual workers. To be exempt from overtime, a position must meet the following three criteria:
- A minimum salary threshold (some exceptions apply);
- Payment on a salary basis as defined by the regulations (some exceptions apply); and
- Primary duties testing that is specific to each exemption.
Common exemptions include:
- Executive employees
- Administrative employees
- Professional employees
- Computer employees
- Outside-sales employee
- Highly compensated employees
Minimum Salary Threshold
The current federal salary threshold for most of the FLSA’s white-collar exemptions is set at $684 per week ($35,568 annualized) exclusive of board, lodging, or other facilities. Employers may use nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis, to satisfy up to 10 percent of the standard salary level.
Employers must also comply with federal, state, and local laws that go beyond the FLSA (for example by setting a higher minimum salary threshold or lower maximum workweek) and with obligations under collective-bargaining agreements.
Salary Basis Pay
Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work.
Primary Duties Test
Each exemption comes with a specific primary duties test that must be met in order for the exemption to apply. Job titles and “white-collar” status do not determine an employee’s exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.
An employee’s primary duty is the principal, main, or most important duty the employee preforms. The primary duties test is an employee-specific, case-by-case inquiry with the major emphasis on the character of the employee’s job as a whole.
Please refer to the executive, administrative, professional, computer and outside sales employees’ DOL fact sheets for more information on these exemptions, and the salary basis fact sheet for more information on this requirement.
Why is it Important to Employers?
Employers should always closely check the exact terms and conditions of an exemption in light of the employee’s actual duties before assuming that the exemption might apply to the employee. The burden of supporting the application of an exemption rests on the employer.
Classifying positions as exempt or non-exempt can be tricky and, if misclassified, can lead to back pay recovery, fines, and penalties if the Wage and Hour Division find willful violations. The FLSA does not consider job title or the history of the position being classified as exempt when it comes to compliance. Just because an employee has the title of manager and is paid by salary, for instance, does not mean they automatically qualify to be an exempt employee.
Having a well-written job description is important for supporting that an employee’s job duties meet the requirements for the primary duties test. It’s best practice to ensure that job descriptions are reviewed at least annually and anytime you are hiring for the position, to ensure that the essential duties listed accurately reflect the actual tasks of the position.
What are the Consequences of Misclassifications?
The cost of misclassifications could result in, fines and penalties, back pay recovery, and potential lawsuits for unpaid overtime. Additionally, a claim of misclassification brought against an employer could result in regulatory enforcement action, meaning the Department of Labor may conduct an audit of all wage and hour practices within the company.
Reclassification of employees comes with some risk as well. An exempt employee who is reclassified as non-exempt may see it as loss of status or a demotion, affecting employee morale. The employee may also question if they are owed back pay for overtime when they were classified as exempt. Conversely, a non-exempt employee who is reclassified as an exempt employee may dislike no longer receiving overtime pay and feel as though they are taking a reduction in pay which may impact future productivity.
Additionally, a prior post from HR Works discusses Increased Penalties for Violating FLSA and FMLA in 2023, noting that Congress passed a law that increases the civil monetary penalties by 7.7% for violations.
Next Step for Employers
Employers should audit all exempt employees job duties and basis of pay to ensure proper classification under the FLSA. Ensure that you have proper documentation to justify the exemption status. Employers should carefully review job descriptions and determine whether they represent an accurate picture of the day-to-day job responsibilities.
Employers should consult with legal counsel if they are unsure of how to proceed with an FLSA exemption audit or they have a position that they believe may be at risk of misclassification. HR Works can assist clients with reviewing FLSA classifications, as well.
Multistate employers must be aware of applicable state or local wage and hour laws which may have additional requirements to ensure compliance with all applicable laws.
Robyn Walsh | HR Strategic Partner