Running or managing a business requires more than merely hiring and training employees, making a good product, or providing a needed service. You as a business owner also have to ensure that your employees are classified correctly as it relates to federal overtime pay regulations and whether they are considered exempt or non-exempt. Knowing the difference and ensuring that your employees are properly categorized will help you avoid severe penalties or even lawsuits that could come up. To learn more about overtime eligibility, hours, pay and covered employees, continue below:
What is Overtime Pay?
In simple terms, overtime pay is compensation that your employees receive for work beyond their normal scheduled work hours. Employee compensation is also impacted by overtime according to the Fair Labor Standards Act (FLSA).
The FLSA is a federal overtime law that specifies any employee who is not considered exempt is paid 1.5 times their regular pay for every hour they work over 40 hours in a workweek. Employees aged 16 and older are not limited to how many overtime hours they can work, provided they are paid appropriately. If they are not paid fairly, then you as their employer could be in violation of the FLSA.
Who is Entitled to Overtime Pay?
All non-exempt, covered employees must be paid overtime. Furthermore, a combination of factors, like the employee’s job responsibilities and their earnings can factor into determining said employee’s exemption status. It’s important to note as well that there are state-specific overtime laws that could come into play there as well.
Who is Exempt from Overtime Pay? How to Determine Overtime Eligibility
When considering the other side of the coin or the employees who are not entitled to overtime pay, all employees who are classified as “exempt” are not considered under the overtime pay rules as outlined by the FLSA. The FLSA specifies exempt employees as those who meet the following outlined criteria:
- Employees who are paid on a salary basis.
- Employees who make at least $23,600, which equals $455 weekly.
- Employees who perform exempt job duties. These specific duties often fall under the category of professional, administrative, or executive work.
Benefits of Hiring Exempt Employees
While they can cost your company a bit more up-front throughout the span of your business, hiring exempt employees or those who are not legally qualified for overtime pay can have its advantages. For example, consider the following notable benefits exempt employees can present over their non-exempt counterparts:
- You don’t have to worry about the Fair Labor Standards Act as mentioned above since you do have an exempt employee who does not fall under the federal requirements for overtime pay compensation.
- Instead, you will need to meet the Department of Labor’s salary level, duties criteria, and salary base.
- In many cases, exempt employees are more knowledgeable than their non-exempt counterparts, but of course, they can cost more to hire as well.
- You don’t have to pay overtime no matter how many hours your employees work weekly. On the other hand, if you are dealing with a non-exempt employee, you would have to pay 1.5 times their usual rate for any hours above and beyond their scheduled 40 hours. Of course, it’s also important to note that asking an exempt employee to work more than is fair for too long with no additional compensation can be a way to lose good, reliable employees, so be careful not to abuse this rule.
- Exempt employees are often the backbone of your business. They are the ones that you rely on to make deadlines and ensure that the tasks are done to your standard. You can ask them to work longer hours and take on more responsibility because you should be paying them more for their services, time, and effort.
Drawbacks of Exempt Employees
There are some cons of hiring exempt employees over non-exempt. A few of which are listed below:
- You likely will have to pay them more as already mentioned. They will likely be highly skilled and will shoulder a great deal of responsibility, and as such deserve more compensation.
- You cannot deduct pay for hours not worked. For example, even if your exempt employees work fewer than 40 hours a week in a workweek, you cannot deduct hours not worked from an exempt employee’s hours. Another way of explaining this is that your exempt, salaried employee will receive the same amount of money on each check regardless if they work 40 hours, 30 hours, or 50 hours. This can work to your advantage as a business owner but can also work to your disadvantage in some cases. Usually, it evens out overall, but just be aware that this can be a drawback of this kind of employment arrangement.
What Does it Mean for an Employee to be Exempt?
To put it simply, an exempt employee could also be classified as an employee who is FLSA-exempt. This means that they are not entitled to overtime pay. All exempt employees are salaried, though admittedly, not all salaried employees are exempt.
It’s also important to understand that all hourly employees are considered non-exempt, meaning that you as their employee must adhere to FLSA regulations or face the potential of fines or lawsuits. Non-exempt employees are either entitled to overtime and pay rates of at least the state minimum wage or the standard set by the FLSA, whichever is higher. These same regulations are not enforced for salaried employees.
It’s Your Responsibility, But We Can Help
Ultimately, it is your responsibility as a business owner to comply with all relevant overtime and labor laws, including paying eligible workers overtime. Thankfully, while you ultimately hold the responsibility of ensuring you are compliant, there is help available to you in ascertaining each of your employee’s ideal classification to ensure that you have set your business up for success.
Contact us today to learn more about overtime eligibility, hours, pay, and more pertaining to your business.
