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Are your exempt or non-exempt employees classified correctly?
If you’re thinking, “I’m not sure,” or “What does that even mean?” – you’re among the millions of business owners guilty of committing the No. 1 Deadly Sin of the FLSA: Misclassifying Non-Exempt Employees.
Why so deadly? For starters, most business owners don’t even realize their employees are classified incorrectly. And if it’s been awhile since you’ve audited your employee classifications, you could be one of them. Unfortunately, ignorance is not an alibi, and the penalties for misclassification are fierce.
2016 is expected to be a record year for FLSA lawsuits and misclassifying employees is seen by many as the fastest way to get hit with one, so we reached out to the nation’s top wage and hour experts to find out how business owners can avoid committing this deadly sin – and what to do if you find yourself at risk. Keep reading for the answers to your most pressing misclassification questions.
We reached out to the nation’s top wage and hour experts to find out how business owners can avoid committing this deadly sin – and what to do if you find yourself at risk. Keep reading for the answers to your most pressing misclassification questions.
First things first, what does the exempt vs. non-exempt status really mean?
The exempt vs. non-exempt status refers to an employee’s eligibility for overtime pay. Non-exempt employees are typically paid hourly and are expected to be paid overtime wages. Exempt employees are generally paid a salary, as such, they do not receive overtime pay. Many misclassification situations aren’t black and white – an employee’s status is dependant on not just their level of compensation, but also their duties and responsibilities, which is why it’s always a good idea to seek the advice of your employment counsel when it comes to correctly classifying your team.
What penalties can employers expect to see if they have misclassified employees?
The penalties for misclassification are extremely costly and can reach back 2 to 3 years. Correcting your mistake before it reaches a lawsuit is always the better (and often cheaper) option.
Does most misclassification occur willingly or unknowingly?
Most misclassification occurs unknowingly. Job titles change, responsibilities shift, and suddenly an employee who was once classified correctly is now a victim of misclassification.
What can employers do to prevent a situation in which employees are misclassified ignorantly?
How can an employer determine if they have their employees classified correctly?
Employers should schedule recurring classification audits or employee reviews to constantly determine whether or not their employees are classified correctly.
What should an employer do upon realizing they have misclassified an employee?
If you discover a misclassified employee, reclassify them correctly as soon as possible. Avoid risk by paying the employee any owed backpay. However, there could be a few precautionary steps you need to take before making any major changes, so check with your employment counsel first to determine the best course of action.
- Schedule regular classification audits to determine whether or not your employees are classified correctly
- Check with your employment counsel to ensure your classifications are on-point
- If you discover that one or more of your employees have been misclassified, check with your employment counsel first, then reclassify the employee as quickly as possible
- The penalties for misclassification are costly – it’s always better (and oftentimes cheaper) to solve misclassification problems up front
Meet The Experts
Maria O. Hart
Maria O. Hart is a member of the Litigation, Trials and Appeals practice group at Parsons Behle and Latimer. Hart's practice focuses generally on commercial litigation and business law. She has experience representing businesses and individuals in both Idaho and Montana. Her practice involves litigation in both federal and state court pursuing or defending against a variety of issues related to health care law, employment law, and general commercial matters.
Staci Ketay Rotman
Staci Ketay Rotman is the Community Investment Officer and Co-Chair of the Wage and Hour Practice Team at Franczek Radelet Attorneys and Counselors. She's the editor and co-author of the firm's wage and hour blog (wagehourinsights.com) and she has also co-authored a number of articles on wage and hour topics. Staci advises and represents employers in all aspects of labor and employment law.
Charles A. Krugel
Charles A. Krugel is a management side labor and employment attorney as well as a human resources counselor. He has more than 20 years of experience in his field and has been running his own practice for the past 15. He serves small to medium sized companies in a variety of industries. Besides providing traditional labor and employment law services, Charles has negotiated hundreds of labor and employment agreements and contracts.