FLSA Classification: What does your FLSA status mean?
What is FLSA status?
How do you determine the FLSA classification for your company's employees? Before you can determine whether or not your employees are exempt, it's important to gain a broad overview of the FLSA in general. Implemented in 1938, the Fair Labor Standards Act is responsible for governing issues such as overtime, minimum wage, and youth employment. In the case of overtime, employees may be "exempt" or "non-exempt," depending on whether they're paid a blanket salary or an hourly wage.
When a non-exempt hourly employee has logged more than 40 hours in a given pay period, he or she is eligible for overtime pay. Per current labor laws, overtime pay is calculated at one-and-a-half times the employee's hourly rate. For example, an employee earning $15 per hour would receive $22.50 per hour at the overtime rate. As a general rule, employees are considered non-exempt unless the employer has completed an FLSA exempt test to verify that the individual is ineligible for overtime pay.
It's imperative for your company to remain current when it comes to the FLSA classification of its employees. Otherwise, you could be subject to monetary fines, in addition to any back wages that have built up due to lack of payment.
How do you classify and determine employees' status?
In order to accurately determine an employee's FLSA classification, you first need to understand the criteria as outlined by the Department of Labor. Here are a few important definitions:
An exempt, or "salaried" employee, is paid a fixed sum for a predetermined period of time. A salary amount may be determined on a weekly, monthly, or annual basis, as per company policy. These employees are not eligible for overtime pay.
These individuals are paid a base hourly rate, and are eligible for overtime pay for any hours worked in excess of 40 per pay period. They may also be referred to simply as "hourly" employees.
In some cases, it's understood that an employee will be paid a fixed salary for working a certain number of hours per week. If they log any additional time, they will be eligible for overtime pay for those extra hours. The overtime rate will be calculated by determining the employee's average hourly pay, then multiplying that number by 150 percent. For example, if the employee is paid $1000 for working a 40-hour week, the average hourly rate would be $25. This results in an overtime rate of $37.50 per hour.
Under the current minimum wage laws, a salaried employee must earn at least $455 per week (or $23,660 per year) in order to qualify for exemption from overtime. Note that even if the employee meets these minimum requirements, he or she is not automatically exempt. They must also meet at least one of the exemptions in the standard duties test, the details of which are outlined below.
The exemption test breakdown
FLSA classification can be determined by administering the following tests: the salary basis test, salary level test, and duties test. The employee may be exempt from overtime if he or she meets both the wage (or salary) criteria, in addition to passing the duties test.
Salary Basis Test
Is the employee paid a fixed amount per week? If so, does this number fluctuate based on the quality of the employee's output, or the number of hours worked? If the answer to the second question is yes, then the employee does not qualify for exempt status.
Salary Level Test
As mentioned above, the employee must be paid the current minimum annual salary of $23,660 in order to be eligible for exemption. Be aware that this number is subject to change, and may be higher depending on the regulations of your state and municipality. See State Variations, below, to determine whether your state's minimum wage is higher than the federal rate.
The final step in the FLSA exempt test involves the specifics of the employee's designated position. They qualify for exemption only if their duties consist primarily of executive, administrative or professional tasks. In-depth definitions of these terms can be found below.
This is the step in the FLSA classification process that tends to generate the most confusion. Remember that employees must meet the minimum salary requirements and pass the duties test if they're to be eligible for exempt status.
Executive duties make up the bulk of many management positions, though these tasks may also be carried out by business owners or other members of the staff.
In order to qualify for the executive exemption, an employee must be responsible for overseeing an entire department or division of the business. In addition, they must personally direct the work and manage the production of at least two employees, and be responsible for hiring and/or firing the workers in that division. In some cases, they might not have the final say in the acquisition or termination of the employees, but their opinions on the matter must be taken into consideration by whomever makes the final decision.
Employees whose primary duties consist of confidential business matters, such as the distribution of payroll, may qualify for the administrative exemption. Their daily tasks must correlate directly with the operation of the business in general. This includes—but is not limited to—effective time clock operation, the handling of customer accounts, and management of the company's incoming bills.
To meet the qualifications for a professional exemption, the employee must have specialized skills and training that relate directly to their position. Many of the employees who qualify for this exemption have been trained in one of the STEM disciplines—that is, science, technology, engineering, and math. Some examples of professional disciplines include teaching, nursing, and accounting.
Knowledge of federal guidelines is of paramount importance when it comes to accurately determining an employee's FLSA classification. However, minimum wage criteria also varies from state to state, and it's up to the employer to remain abreast of local laws.
As of 2019, employers in the following states are required to provide a base minimum wage that's higher than the federally approved rate of $7.25 per hour:
- New Jersey—$10.00
- New Mexico—$7.50
- New York—$11.10
- Rhode Island—$10.50
- South Dakota—$9.10
- West Virginia—$8.75
In addition to the minimum wage differences, some states have different laws regarding FLSA classification. This could mean that individuals in certain occupations qualify for exempt status at the state level, even if they didn't pass the duties test on the federal level. There could also be variances in the regulations concerning work permits for minors or training wages for new hires. More information can be found at the websites for the labor offices of each state.
The Bottom Line
How can ClockInEasy help your company in the effort to determine the proper FLSA classification for each employee?
First and foremost, the software can accurately track the hours worked in any given pay period. The built-in facial recognition will ensure that the employee is indeed present and accounted for at clock-in time, and the geofencing feature can tell you which location they were in when they punched in and out. This makes it easier to determine whether non-exempt employees worked enough hours to qualify for overtime pay. The software will automatically calculate overtime for non-exempt workers, so there's no need to perform complex math problems when it's time to process payroll.
If you have employees who work remotely, it can be problematic to verify their hours. As the majority of these workers usually have an FLSA classification of "non-exempt," this can create a major headache for the payroll department. With ClockInEasy, workers can log in using their smartphone or tablet. In addition to being convenient, this tool may actually aid in worker productivity, since a home office environment offers fewer distractions than a bustling workplace.
In short, ClockInEasy offers multiple benefits that will aid your company in remaining compliant with FLSA regulations. The system is designed to cut down on your timekeeping chores, so that you can focus on the concrete aspects of your business.