4 pitfalls that lead to employee misclassification

Doing one of these things to exempt employees will rub out their exempt status – and can make your company liable to pay them overtime compensation.
1. Paying less than the minimum wage
Exempt employees must be paid on a salary basis and make at least $455 per week ($23,600 per year) to maintain their exempt status. All employees who are paid less are non-exempt.
Generally, an employee is paid on a salary basis if the person has a guaranteed minimum amount of money he or she can count on receiving for any work week in which he or she performs any work.
2. Making salary deductions for the quantity or quality of work performed

Exempt employees must be paid their full salary for any work week in which they work.
So even if an employee puts in just an hour of work one week, the person must be paid his or her full salary.
3. Deciding to just pay employees a set salary
Just because an employee is paid a regular salary doesn’t make that person exempt from overtime.
To be exempt, employees must meet all of the following requirements:

  • Be paid at least $455 per week
  • Be paid on a salary basis, and
  • Pass the exempt Job Duties Test.

The three categories of exempt duties under the Job Duties Test are “executive,” “administrative” and “professional.”
4. Changing employees’ duties so they no longer pass the Job Duties Test
To be classified as exempt under one of the three categories mentioned in the section above, an employee’s duties must satisfy the requirements assigned to a particular category.
For example, to be exempt under the “executive” job duty category, employees must:

  • Regularly supervise two or more other employees
  • “Manage” as their primary job duty (if an employee is in charge of a department, then he or she is deemed a manager), and
  • Have some input into the job status of other employees (either through hiring, firing, promotion or assignments).

Warning: It’s easy for employers to often fall into the trap of forgetting to review employees’ job descriptions frequently. The danger there is job duties evolve over time, and employees who were once classified properly as exempt may need to be reclassified.
So be sure to review formal job descriptions regularly, and then compare them to what employees are actually doing day in and day out. Then reclassify as necessary.
Info: To review the requirements for each job duty category, click here.