Wage and hour laws are deceptively complicated. While the rules are general, they must be applied on a case by case basis. The application of wage and hours laws to individual employees is often what trips up employees. Here are five common errors that employers make and how to avoid them:
1. They assume that if they put their employee on a salary then the employee is automatically exempt.
While it is true that all hourly employees are exempt, the reverse of that is not always true. Sometimes employers believe that if they start paying employees on a salary basis then they will automatically be exempt. Payment of wages on a salary basis is but one of the tests for exempt status. In order for an employee to be truly exempt, they must meet both the salary and duties test. An exempt employee must be paid, for now, a salary which equals or exceeds $455.00 a week (soon to increase dramatically with the amended DOL regulations) and performs the duties of one or more defined exempt status jobs. The most common exemptions are what are commonly called the “white collar” exemptions, meaning that the employee’s primary duties fall into the definition of executive, professional or administrative. An employee who is paid a salary, as opposed to an hourly wage who does not meet the duties test is simply not exempt.
2. They base exempt status on job descriptions alone.
The duties test mentioned above cannot be determined by a job description alone. The real test of whether an employee qualifies as exempt under the duties test is an analysis of what they actually do, not what the job description says. After all, a job description can be fairly generic in order to apply to a number of people in a job title. For instance, two employees can be classified as supervisors, but one is assigned to a department with only one other employee while the other is in a department where they actively supervise ten employees. Exempt employees must perform exempt duties, regardless of what is on the job description itself.
3. They base exempt status on job descriptions that don’t match the employee’s actual duties;
Take the position of Executive Assistant. This may be the person that works for the CEO or IT Manager. When the job was first created, the staff was few. The Executive Assistant not only worked as the personal secretary to the CEO or IT Manager, but also supervised five support staff, including hiring and firing them and directing and evaluating their work, as well as creating policies and a budget. The job was paid on a salary basis and the employer defined it as exempt. Five years late, the number of support staff have increased to twenty and the employer has created an HR department to supervise this staff. The Executive Assistant is paid a higher salary now but works exclusively as the secretary to the CEO or IT Manager without those other duties, even though the actual job description remains exactly the same as it did five years previously. The primary duties are now more clearly non-exempt, regardless of what the job description says.
4. They don’t count off duty work as compensable;
Non-exempt employees are entitled to pay for all of the hours that they work, regardless of whether they are doing the work during scheduled work time, or off duty. This issue has blossomed since the advent of smart phones and other electronic devices that keep everyone connected all of the time. Employers need a clear policy prohibiting non-exempt employees from working off duty without prior authorization. They should consider prohibiting employer email access on non-exempt employees’ personal electronic devices to avoid the temptation for them to check and respond to their email while off duty. Further, employers should require non-exempt employees to certify on their time report that it is an accurate reflection of all the time worked during that period to avoid future claims of off duty work.
5. They misclassify employees as independent contractors.
The Department of Labor is focusing greater attention on independent contractor classification of individuals. Earlier this year, the DOL issued an administrative interpretation which suggests that future analysis of the independent contractor classification will focus more on the economic dependency of the “contractor” to the other party. The more dependent the individual is for their livelihood on the contract itself (for instance, a contractor who only has one contract for work and few or no employees) the more likely the contractor is actually an employee and not an independent contractor. A misclassification can result in the employer owing employment taxes, penalties and interest, as well as overtime pay for all hours worked over 40 in a week.