When you run a small business, it’s important to be aware of the state and federal laws related to employees’ wages and benefits. One particularly important issue is understanding which of your employees are entitled to overtime pay.
The U.S. Department of Labor sets rules and regulations detailing the employees who are exempt or nonexempt from overtime pay under the Fair Labor Standards Act. Violating these rules can lead to serious penalties and require you to provide back-pay to the affected employees.
The FLSA mandates that all nonexempt employees be paid at least minimum wage and receive overtime pay equaling one-and-a-half times their regular rate of pay for all hours worked in excess of 40 per week. Although the federal minimum wage is $7.25 per hour, state minimum wages differ, and you must pay whichever rate is higher.
Most employees earning an hourly wage are nonexempt. “Blue collar” workers—or those who provide manual labor such as construction workers—and first responders such as police officers and firefighters are also nonexempt.
The FLSA excludes certain types of workers, such as outside sales employees, teachers and airline employees, along with those employees earning above a certain salary. These employees are labeled as exempt.
To determine if your employees are exempt from overtime, you can conduct a few simple tests based on their earnings and job duties. Most exempt employees meet the following requirements:
The FLSA excludes employees who perform particularly high-level job duties within three main categories: executive, administrative and professional. There are also specific regulations in regard to computer and outside sales employees.
Executive employees are considered exempt if they perform the following duties:
Administrative employees typically perform duties that assist the management or operations of the business, such as human resources or accounting staff. To be considered exempt, they must:
Professional employees perform work that requires advanced training or education, including creative professions like writers and musicians. To be considered exempt, they must:
It’s absolutely critical that you properly classify each of your employees as exempt or nonexempt according to the regulations outlined in the FLSA. Additionally, you should always keep records of hours worked and how much you pay all workers to ensure they are making more than the required minimum wage. Employees who are nonexempt, but are not offered overtime wages, may file FLSA overtime claims with the Labor Department.
By keeping careful records and taking the time to properly classify your employees, your business will be safe from the penalties and complications that arise when a violation has taken place.