In a prior post, I discussed the five “white-collar” exemptions to the Fair Labor Standards Act’s (“FLSA”) minimum wage and overtime pay requirements. This post addresses the consequences of improperly classifying employees as exempt, identifies common classification mistakes, and offers suggestions and recommendations to ensure proper classification.
Consequences of Improper Classification
The ramifications of improperly classifying employees as exempt under the FLSA can be significant. First, an employer may be the subject of a Department of Labor (“DOL”) investigation, which can result from an employee complaint or be conducted as part of a targeted industry investigation. The DOL can supervise the payment of back wages and liquidated damages (also known as “double back pay”) owed to employees who were improperly classified. Second, an employer may be sued by an employee or the DOL for back wages, liquidated damages, attorneys’ fees, and/or injunctive relief preventing further violations. Notably, personal liability may be imposed on the employer’s officers, directors, and/or those employees who are “responsible” for the violation (based on an “economic reality” test). Third, the DOL can impose civil money penalties on employers. Finally, criminal prosecution is possible for “willful” FLSA violations.
The following are common classification mistakes:
- Classifying all “salaried” employees as exempt without regard to the employees’ duties. An employer cannot make an employee exempt simply by paying the employee a salary as opposed to an hourly rate. It is imperative that the employer evaluate the employee’s duties in relation to each of the white-collar exemptions.
- Classifying all “supervisors” or “managers” as exempt. The executive exemption does not automatically apply to all employees with management responsibilities or titles. To qualify for the executive exemption, an employee must have management as his primary duty, regularly and customarily direct the work of at least two employees and have the authority to hire and fire employees or significant input regarding such decisions.
- Classifying based on job titles and descriptions alone. While job titles and descriptions can be helpful in evaluating exemption status, each employee must be evaluated on a case-by-case basis to determine whether the employee is exempt.
- Classifying all highly educated employees as exempt. This approach ignores whether the employee actually performs exempt duties.
- Classifying employees as exempt because they are “well paid.” There are many well-paid and valuable employees who do not qualify for an FLSA exemption. Unless an executive, administrative, or professional employee earns at least $107,432, the employee must still meet all the requirements for the relevant exemption, and even if an employee earns $107,432, the employee must still perform at least one exempt duty.
- Classifying ALL employees as exempt. Although it is technically possible for all employees of a business to be exempt if they meet the requirements, it is rare. Most businesses have employees whose primary duties do not qualify them for an exemption.
Tips to Ensure Proper Classification
The following are practical tips to ensure the proper classification of employees as exempt or non-exempt:
(1) Evaluate each employee individually.
(2) Do not rely on job titles and/or descriptions alone.
(3) Do not assume that all workers with the same title or at the same level should be classified the same.
(4) Consult the DOL Fact Sheet for each exemption.
(5) Consult your attorney to conduct a thorough analysis of classifications.
If you have questions or concerns regarding FLSA exemptions or other employment matters, please contact Maureen Carr at email@example.com.
This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the author and are not necessarily the views of any client.