Three Things to Know about the FLSA's Exempt Employees

The payroll world was talking incessantly about exempt employees when the Obama administration announced rule changes affecting overtime pay. We suddenly stopped talking about them when the current administration made moves to roll back those rules. Yet that does not mean employers can slack off on FLSA compliance where exempt employees are concerned.
 
An exempt employee is one not subject to overtime pay rules under the FLSA. These are salaried employees who do not work 'by the hour' by punching a clock or signing in and out. They are expected to put in whatever time is necessary to get the job done.
 
Here are three things you need to know about exempt employees:
 

1. How the FLSA Defines Them

 
As with most things relating to the U.S. government, there is no clear and absolute definition of an exempt employee. Rather than creating such a definition, the FLSA offers several criteria that stipulate an employee's exempt versus nonexempt status. In order to be qualified as exempt, an employee must meet the following three requirements:
 
He or she is paid at least $23,600 annually or $455 weekly
He or she is paid a salary rather than an hourly wage
He or she must perform exempt duties (outside sales, for example).
 
An employee who meets all three requirements can almost always be considered exempt. But 'almost always' does not equal 100% of the time. There are cases in which an employee meets all three but is still nonexempt. This is where an experienced payroll provider or labor attorney comes in handy.
 

2. You Shouldn't Track Exempt Employee Time

 
Exempt employees do not benefit from overtime rules. In exchange for not receiving such benefits, they are also not tied to a particular schedule. It is a trade-off. As such, employers should not be tracking the hours their exempt employees work. Doing so is cause for concern for the federal government.
 
As the thinking goes, there is no need to track hours worked by an exempt employee. This is especially true for employees who might earn a sizeable percentage of their pay through commissions. An employer who insists on tracking exempt worker time runs the risk of being in violation of the FLSA if a government inquiry reveals said worker is being held to a strict schedule without being compensated for overtime.
 

3. Record Keeping Is Different for Exempt Workers

 
Finally, the FLSA requires employers to keep meticulous records on both exempt and nonexempt employees alike. Yet different records are kept for each kind of employee. Employers are required to keep records on hourly pay rate, weekly hours, overtime hours and pay, and a lot more.
 
For exempt workers, the requirements are slightly different. Employers must keep records on total earnings for the pay period, payment dates, employee wage basis, and the time and day of the week the workweek begins.
 
In both cases, records should be for a minimum of three years. Government investigators may want access in the event of either a formal or informal inquiry.
 

Proper Classification Is a Must

 
Worker classification errors are among the most common for U.S. employers. Whether it is improperly classifying an employee as a contractor or a nonexempt employee as exempt, misclassification can lead to all sorts of headaches. These are headaches you do not want for your company.
 
If you are having trouble figuring it all out, why not give us a call? We are experts in all things payroll and benefits administration. We offer ironclad payroll solutions that address everything from regular payroll processing to employee classification.