Wage and Hour Division Cracks Down on Employee Misclassification
Wage and Hour Division Cracks Down on Employee Misclassification

Wage and Hour Division Cracks Down on Employee Misclassification

The Department of Labor’s Wage and Hour Division (WHD) has been increasing their enforcement efforts against employers who improperly classify employees as exempt from the minimum wage and overtime pay requirements of the Fair Labor Standards Act.

Kryger Class Co was required to pay more than $107,000 in back wages when their night delivery drivers were wrongly classified as exempt from overtime pay. Kryger had been paying them fixed salaries each week regardless of hours worked.

As many employers who have had run-ins with the WHD have found out, paying an employee a fixed salary does not necessarily make him or her exempt from overtime. Exemption is based on three main factors: salary level, salary basis and job duties.

1. Salary level
For most employees, the minimum salary required for exemption is $455 a week. For example, if the employee is paid biweekly, his paycheck should be at least $910.

2. Salary basis
Employees can be exempt (paid on a salary basis) if the following factors are true:

* Must regularly receive a predetermined amount of compensation each pay period (can be weekly or less frequent)
* Compensation cannot be reduced because of variations in the quantity or quality of the work performed
* Must be paid the full salary for any day/week in which the employee performs any work
* Need not be paid for any day/week when no work is performed

If deductions are taken when the employer or the operating requirements of the business cause the worker to be absent, the employee can no longer be classified as exempt. Also, if the employee is willing, ready and able to work, the employer cannot make deductions for time when work is not available. There are exceptions to this rule, but making improper deductions from an employee’s salary could result in losing the exemption status. However, if the improper deductions are isolated or accidental, you can avoid losing the exemption by reimbursing the employee.

3. Job duties
Certain professions are typically exempt because of their job duties. Some common exempt professions include:

* Executives, including 20% owners
* Management or general business operations professionals
* Administrative professionals
* Outside sales professionals
* Lawyers
* Teachers
* Accountants
* Pharmacists
* Engineers
* Actuaries
* Chefs
* Certified athletic trainers
* Insurance claims adjusters

For more information on exemptions related to job duties and professions, visit the WHD website.

As many companies have learned the hard way, improperly classifying employees as exempt can lead to serious fines from the WHD. Make sure you understand the rules and keep your company in compliance. Paycor’s HR Support Center gives you access to a knowledgebase of HR tips, alerts, checklists and templates to help you reduce your risk of non-compliance. In addition, an upgrade to HR On Demand lets you call or email HR professionals who can guide you and answer your specific questions. Get in touch with us to learn more.

Source: Department of Labor Wage and Hour Division

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