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Complexities of Federal Overtime Regulations Can Make Designating Exempt Employees Difficult

recent post discussed the importance in payroll administration of correctly classifying workers as either employees or independent contractors. Handling employee payroll properly also requires employers to further classify employees as “exempt” or “non-exempt” for purposes of calculating overtime pay. As a general rule, federal law requires that non-exempt employees be paid at least 150 percent of the regular wage rate (“time-and-a-half”) for hours worked in excess of the standard 40-hour workweek established by the Fair Labor Standards Act (FLSA).

The tricky part for employers is determining which employees can be lawfully treated as exempt, and as is the case with the “contractor-or-employee?” issue, doing so is not necessarily as straightforward as it seems. The vast majority of employers who want to do the right thing must still decipher and apply a complicated body of Department of Labor regulations, DOL opinions and federal court rulings to make correct determinations.

The term “exempt” specifically refers to exemptions to the general overtime provision contained in Section 213 of the FLSA. The main distinction drawn in the FLSA could be summed up in the very loose generalization that white-collar work is exempt, while blue-collar work generally is not. In fact, the first paragraph of Section 213 defines the main category of exempt workers to include “any employee employed in a bona fide executive, administrative, or professional capacity.” Obviously this is a vague description, so the law contains an additional three dozen sections devoted to expanding and clarifying it!

The law also goes on to enumerate some other types of employment that are exempted, some of which are notable exceptions to the “blue-collar” rule of thumb, and some of which are downright odd, such as:

  • Computer designers, programmers and systems analysts
  • Agricultural workers
  • Fishermen or at-sea fish processors
  • Movie theater employees
  • Car salesmen or mechanics at a car dealership
  • Taxi drivers
  • Newspaper delivery persons
  • At-home wreath makers
  • Maple syrup production workers

Some employers make the mistake of assuming they can render employees exempt by putting them on salary and giving them appropriate-sounding job titles. The DOL is quite clear that neither action automatically makes an employee exempt. Employees are classified by the duties they actually perform, not their job titles.

For employers, the stakes of improper payroll management decisions can be high. Employers who fail to correctly pay overtime wages must reimburse the employees who were underpaid, along with liquidated damages equaling the amount of the underpayment. These payments can be retroactive to up to three years in the case of willful violations. Employers who are successfully sued for overtime pay must also pay the defendant’s legal fees.

There are many more details and nuances to the federal overtime regulations, and each state may have its own additional overtime laws, making even small business payroll complicated. But small business owners can make their lives easier by relying on the payroll specialists at Padgett Payroll Services. Call (706) 548-1040 today to find out more about the advantages of hiring Padgett to be your payroll processor.

Do you have the support you need to manage your small business bookkeeping? Schedule a 30-minute appointment to speak with a local small business adviser.

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