Some employers, either through lack of knowledge or in an attempt to save money, may not be paying employees correctly. Recent changes in the Fair Labor Standards Act have also affected overtime rates and who is eligible to receive them. Employers and employees are both affected by these changes and should take notice.
Employees are typically divided into two pay classifications, Exempt and Non-exempt. Exempt employees are those employees in management or executive positions who typically have the responsibility for making independent decisions, supervising others and spending less than twenty percent of their time performing administrative or physical work duties. Exempt employees are paid a set monthly salary and are not eligible for overtime compensation. Essentially, everyone else falls into the Non-exempt category and should be paid appropriately for all overtime worked. Non-exempt employees may be paid on either an hourly or salaried basis. This includes supervisors who perform work similar to those they supervise greater than twenty percent of their time, administrative assistance personnel, drivers and other laborers.
Newly instituted overtime laws have further complicated matters of who is eligible for overtime and who is not. Nurses for instance who once were eligible for overtime now are not. New overtime rules affect nearly every major aspect of exempt status criteria, making it easier for workers to be classified as administrators or professionals who are not typically eligible for overtime. The rules also generally stop people earning more than $100,000.00 from automatically qualifying for overtime.
At the same time the Division of Labor estimates the rules give 1.3 million more workers OT benefits and guarantee benefits to an additional 5.4 million employees who may not be receiving the overtime they were entitled to because the old rules weren’t clear.
This new law makes it a necessity to conduct position audits and possibly reclassify positions at all levels within the company. This involves performing internal audits of position descriptions and responsibilities I a systematic review of wage payment practices and job classification for overtime purposes.
There are also important differences between the way employers must treat employees and contractors. Employers should know that unless a person meets certain defined criteria, he or she is most likely an employee of the company and cannot be classified as a contractor. To qualify as a contractor, the person must perform similar work for other companies, must have control of when and where the work is performed and must provide their own equipment and supplies.
Time keeping methods also indicate how people are classified within an organization. As an example, Exempt employees and contractors should not be required to keep track of their attendance in hours worked in any given day. Tracking holidays, vacation and personal time off also is an indication of position classifications made by the employer.
Fair Labor Standards Act audits may be conducted at any time and for any or no reason. These audits are very time intensive and distracting. Any discrepancies found in failure to pay overtime correctly can result in fines as well as required payment of all back overtime with interest. Incorrectly classifying someone as a contractor can also result in fines, payout adjustments and payroll tax and social security payment revisions.
Employers are encouraged to check with their outside accounting consultants, employment attorney or with a qualified HR consultant to ensure compliance with these ever changing and important compensation guidelines. This issue cannot be overlooked.