The US Supreme Court recently made a startling decision: an employee making over $200,000 a year had a legal right to be paid overtime. Many employers think they can skirt overtime and make employees exempt by paying them a certain amount of money. This case shows why that does not work.
A quick refresher on employee classification
Under the Federal Labor Standards Act (FLSA) employees generally fall into two categories:
- Non-Exempt: Paid at least minimum wage hourly for up to 40 hours regular time and any time over 40 is overtime.
- Exempt: Paid on a salary basis and must meet the duties test to be exempt. Many employers miss this crucial test, which has various factors depending upon the job. Many employers also think the duties test does not matter if an employee is highly compensated BUT
- Highly compensated employees (HCE) may be exempt if they are paid a minimum of $107,402 on a salary basis annually AND meet one of the exemption duties.
The employee here is an off shore oil digger who supervised other employees and satisfied the executive exemption under the FLSA. He sued for unpaid overtime because he was paid by the day every two weeks, rather than a salary. He was not paid on a “salary basis” but on a daily basis.
The Supreme Court sided with the employee. Because he was not paid on a salary basis under the executive and HCE exemptions, he was not exempt. He was owed overtime.
The Takeaway
So what, you’re thinking, we do not pay people by the day. Not so fast: The salary basis is just one qualification for exempt status. The duties test must also be met! A highly compensated, salaried employee could be misclassified because of their duties, and it could cost your organization.
This does not have to be difficult.
Get your employee classifications in order before a lawsuit or audit by the state or federal government does it for you. We have an easy to use, fixed fee service that has helped employers nation wide comply with their federal and state obligations. Check out this fact sheet on our service and contact us.