Almost every job in the nation is covered by the Fair Labor Standards Act, or FLSA. This act covers the rules and regulations every employer must follow to ensure that their workers are treated fairly and equally in the eyes of the law. Its protections extend to the payment of overtime.
While most employees are considered eligible for overtime pay, there are those who are not. Misclassifying an employee as exempt from overtime pay can lead to serious legal troubles for any business. Here is an overview of the difference between exempt and nonexempt workers, and how you can ensure your employee classification is correct.
Exempt Employee Classification
There are two general types of jobs that are not covered under FLSA rules governing exempt or nonexempt employee classification. Jobs that are governed by other specific federal labor laws, and those specifically mentioned in the FLSA are exempt. Examples of these jobs include movie theater employees, agricultural workers, railroad workers and truck drivers. The first two are specifically mentioned in the Act, while the latter two are governed by other labor laws.
Exempt vs. Nonexempt
FLSA-governed jobs are classified as either “exempt” or “nonexempt.” Nonexempt employees are entitled to overtime pay should they work more than full-time hours in a week. Exempt employees are not entitled to this benefit. In most cases, three factors determine exempt vs. nonexempt status:
- How much the employee is paid
- The means of payment
- The kind of work performed
In order to be classified as exempt, a worker should make a minimum of $23,600 per year, be paid on a salaried rather than hourly basis, and perform job duties that are defined as exempt within the context of the FLSA itself. However, that salary threshold may change very soon. Learn more about the upcoming overtime regulations in our ebook available for download: Overtime Ruling – Update and Actions.
In general, if an employee is classified as exempt, they have almost no rights at all under the overtime rules specified in the FLSA. They have the right to their full base salary and nothing more, regardless of the amount of work done.
Employees who are nonexempt have full rights to overtime pay equal to normal rate plus half-again (time-and-a-half) for working over the FLSA-defined overtime threshold in a given work period.
It is vital to keep up on the rules for employee classification under the FLSA. As the landscape of employment changes to flexible hours and a work-home balance, misclassifying employees can be a real danger to companies. The IRS comes down very hard on employers who misclassify workers, and the costs can be millions in lost time, effort and money. This is a mistake that you cannot afford to make.