The introduction of new overtime rules in 2016 under the Obama administration's Department of Labor shined an unpleasant light on a problem that has existed within the American workforce for as long as anyone can remember. The problem is one of employees being underpaid. When underpayment is purposeful, it is known as wage theft. Yet even when ignorance is the culprit, underpayment is still not acceptable.
A study released by the Economic Policy Institute in early May suggests that U.S. workers lose some $8 billion annually as a result of minimum wage violations. It is not for us to say how much of this is the result of genuine ignorance as opposed to purposeful wage theft. But what we can say is that employers need to make every effort to understand the difference between exempt and nonexempt workers so as not to violate minimum-wage and overtime rules – even in ignorance.
Definition of Exempt Employees
Exempt employees are employees who can be compensated for their services outside of some of the overtime and minimum wage rules established by the Fair Labor Standards Act (FLSA). Examples of such employees include executives, managers, sales professionals, administrative professionals, and other 'white collar' workers normally paid via salary rather than hourly.
Exempt employees may or may not work in excess of 40 hours per week on a regular basis. Because they are salaried rather than hourly, many of them do not even track their hours with any real accuracy. It should also be noted that the FLSA classifies exempt workers by looking at both their normal job duties and their basis of pay.
Minimum-Wage and Overtime
Any worker not classified as exempt must be compensated according to FLSA rules. For starters, that means paying at least the minimum wage as set forth by the state in which that employee lives and works. Employees working for a company that derives the majority of its income from federal contracts must be paid at least the federal minimum wage.
The FLSA requires employers to accurately track time and attendance and keep records on file for a minimum amount of time. Whenever a worker exceeds a 40-hour work week, the excess time must be paid at one-and-a-half times the worker's normal hourly rate. That means a worker earning $10 per hour should be paid $15 for every overtime hour worked.
Protect Yourself and Your Business
The underlying premise of this blog post is that underpayment occurs both purposely and ignorantly. We will not address purposeful underpayment except to say that it is against the law as well as unethical. In terms of ignorance though, it is understandable that some small businesses have trouble with exempt and nonexempt employees due to the complex nature of payroll.
If you are a business owner yourself, we urge you not to be a victim of ignorance. Protect yourself and your business by taking the steps necessary to ensure all your workers are properly classified and paid accordingly. If you find the entire process too overwhelming to handle in-house, BenefitMall can help.
We are a full-service payroll and benefits administration provider with clients across the U.S. We can offer you a solution that meets your company's needs without forcing you to pay for services you don't want. From online payroll to ACA compliance and workers’ compensation, we can handle as much or as little as you need us to.
BenefitMall is also proud to offer specialized payroll solutions for the construction and restaurant industries. For more information about these customized solutions, do not hesitate to contact us.