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What Employers Should Know About Employee Classifications

It is extremely important for employers to properly classify their employees as exempt or non-exempt. For example, if an employer misclassifies a non-exempt employee the employer could be liable for paying back wages if the employee worked any overtime, as well as penalties and fines from the New York Department of Labor and the Federal Department of Labor.

The Fair Labor Standards Act (FLSA) exempts or excludes certain employees from its minimum wage and overtime laws. Under the FLSA, employees who are exempt from minimum wage and overtime laws include:

  1. Executive, administrative, and professional employees and some computer workers; and

  2. Outside salespeople such as those who do sales away from the employer’s place of business, like a door-to-door salesperson.

However, it is important to note that a job title does not decide whether an employee is exempt. Employees are exempt if:

  1. The employee works on a salary basis;

  2. The employee’s salary is at least $1,125.00 per week; and

  3. The employee’s job title and description accurately states that the employee’s responsibilities are those of either an administrative employee, an executive, a certain type of computer worker, or a specially skilled worker.

Generally, an employee is likely a non-exempt employee if:

  1. The employee works a regular, forty-hour work week without an employment contract;

  2. The employee earns less than $1,125.00 per week, no matter what the employee’s job title is; and

  3. If the employee is not an executive, administrator, or professional employee.

Employers should also be careful not to misclassify employees as independent contractors. Classification as an independent contract depends on factors such as the worker’s financial relationship with the company, the degree of control a company can exercise over the work or the work environment, whether the company is in a position to discipline the worker and whether the company provides the worker with the tools to complete their job. An employer may face tax consequences for this misclassification, as well as be held liable for on-the-job injuries, workers compensation, and overtime payments.

Please contact PMP for more information.


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