First in a series of seven articles
The distinction between exempt and nonexempt status is a foundational concept under the Fair Labor Standards Act (FLSA). And yet, it is sometimes misunderstood, even by large employers. The stakes are high.
At the core of the FLSA are two basic mandates: overtime pay for any hours worked over 40 in a week and payment of wages equivalent to at least $7.25 per hour. The FLSA exempts several types of jobs from those requirements, including:
- Computer employees
- Administrative employees
- Outside sales employees
These terms have clear tests to determine whether a position qualifies as exempt. It is not sufficient to merely examine the job title or even the job description. Sometimes, a position may qualify under more than one exemption (e.g., a supervising attorney). For one thing, an exempt employee typically must be paid on a salary basis and earn a salary of at least $455 per week. The difficulty lies in the subjective nature of conducting these tests. What might look like discretionary work to one employer may look like routine, manual work to a court. This issue is among the most often litigated and contested areas of HR and payroll law.
Just ask Wal-Mart. In early May, the DOL’s Wage and Hour Division (WHD) settled with Wal-Mart for more than $4.8 million. The violation was wrongly classifying more than 4,500 employees whose job titles were vision center managers and asset protection coordinators.
“Misclassification of employees as exempt from FLSA coverage is a costly problem with adverse consequences for employees and corporations,” said Secretary of Labor Hilda L. Solis. “Let this be a signal to other companies that when violations are found, the Labor Department will take appropriate action to ensure that workers receive the wages they have earned.”
Violations can result in civil money penalties, back wages, liquidated damages and attorney fees. FLSA class action suits like the one against Wal-Mart are increasingly common. The current FLSA rules have been in place since 2004. More information is available at the WHD web site. Another good resource is the WHD Field Operations Handbook, Chapter 22. In our next exempt-nonexempt article, we will examine common mistakes related to the salary basis requirement for exempt employees.