Paying Employees

Since my goal is to help small business owners with their compliance and employment issues, I thought that examining one of the most prevalent law violations would be helpful. This violation cost businesses in the Lowcountry over $3 million in fines last year.

Are You Being Paid Correctly Based Upon The Law?

The Federal Labor and Standards Act (FLSA) has been around since 1938. It states that all hourly employees must be paid 1 ½ times their regular hourly wage if they work more than 40 hours in a workweek. Salaried employees are exempt from overtime, meaning that they work as many hours a week as are needed to get the job done.

Most employers know that they have to pay overtime after 40 hours. However, some small businesses don’t pay attention to the rules about who is exempt from overtime. The first criterion is that the person be compensated at least $455 a week. The second is the standard that many businesses overlook.

Here are the employees who are exempt (salaried) groups.

The first category is executive. If a person manages the company (or a division or department of the enterprise), supervises at least two full-time employees, and has the authority to hire and fire, that person is exempt from overtime. Most people have no difficulty understanding that executives are not hourly employees.

Another exempt classification is administrative. This employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations and exercises “discretion and independent judgment” over significant matters. Think of high ranking administrators (general business operations) who don’t have direct reports. – they fit this category.

The next type is the “learned professional”, whose work requires advanced knowledge in the field of science and learning that is “intellectual and requires the consistent exercise of discretion and judgment”. These folks, like teachers, scientists, etc. have a lot of specialized education under their belts. Also included in this group are creative professionals who perform work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. This covers artists, dancers, musical performers, and others.

Also included as exempt are computer professionals such as computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field. This group’s responsibilities include consulting with users to determine hardware, software, or system functional specifications; designing, developing, documenting, analyzing, creating, testing or modifying computer systems or programs. This doesn’t include the help desk.

The final group of exempt employees is outside sales persons, whose primary responsibilities must be making sales or obtaining orders or contracts for services or for the use of facilities. They must regularly be engaged away from the place of business.

These groups are the only exemptions to the overtime rule. They must be salaried and paid at least $455 per week on a salary or fee basis. If they don’t meet the criterion above, then they must be paid overtime.

The rules are clear about who gets paid a salary. They must be paid more than $455 a week and be included in one of the groups above. If they don’t meet both criteria, then pay them an hourly wage and overtime when necessary. Don’t get your business into trouble by misclassifying your employees. The fines are simply not worth it.