Basic Training: ‘Finagling’ Overtime . . . and Why That’s an FLSA Red Flag

Posted on September 1, 2018 in Employee Issues

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Like cheating on taxes, playing fast and loose with Fair Labor Standards Act employee classifications can land you in a world of hot water. Do you know the distinction/difference between “exempt” and “non-exempt” employees as it relates to their duties and the paying of overtime?

Q: I want to lessen my payroll by finding ways to lower the amount of overtime I pay people. The question has come up about converting someone from an hourly employee to a yearly salaried one. It’s my understanding that there are strict limits on who can be a salaried/exempt employee vs. someone who works on an hourly basis. I’d prefer to pay someone more via a salary, but less than it would cost me to pay overtime.

A: The exempt/non-exempt distinction is not one you want to play around with.  Violations of wage and hour laws are one of the top reasons employers get sued–and the penalties can be stiff.

The issue is not whether the employee will be paid a salary (instead of hourly) for work done–it’s the nature of the work the employee is doing that affects the pay structure. The U.S. Department of Labor specifically designates certain classes of workers as exempt, including executives, administrative personnel, outside salespeople, highly skilled computer-related employees and licensed professionals, such as doctors, lawyers, architects, engineers and certified public accountants, among others. In addition, managers who hire and fire employees and who spend less than half their time performing the same duties as their employees are typically also exempt employees. In general, the more responsibility and independence or discretion an employee has, the more likely the employee is to be considered exempt.

If the concern is slashing payroll/overtime costs, you may be better served by looking into outsourcing certain functions (e.g., for janitorial services) by hiring a separate company, rather than trying to reclassify an employee and run the risk of violating the Fair Labor Standards Act.

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