Double Check Your Over Time Classifications

Written and Submitted by Smal Business Advisory Council Member:
Hal Wood
Advisory Management Services, Inc.
advismgmt@earthlink.net

One of the most frequent and risky mistakes that a business makes is classifying their jobs for overtime pay under the Fair Labor Standards Act.  If a job is classified “Exempt”, it is not eligible for overtime pay after 40 hours of work during a normal week.  Obviously, that is to the employer’s advantage, so the tendency is to misclassify jobs in that direction.

However, for a job to be “exempt”, it must meet some rigorous tests.  There are six categories of exempt jobs in the FLSA:  Executive, Administrative, Professional, Computer, Outside Sales, and Highly-Compensated.  All are defined in the act and are available on the Dept. of Labor website:  www.dol.gov.

The classification mistakes are made when managers think that the job title or being paid a salary is what makes the job “exempt”.  Neither has anything to do with the criteria in the Act.  In fact, you can have a job with “Supervisor” in the title that is paid a salary, and it may not be “exempt”.  You can also have a job entitled “Computer Analyst” that is paid hourly, and it is “exempt”.  You have to go by the criteria in the Act!

The penalties for misclassification are severe, and any employee can call the Dept. of Labor and request an audit if they feel they have been unfairly classified.  If it is found that the misclassification was intentional, there is an automatic $10,000 fine.  That alone could jeopardize the existence of many small businesses.  Then the DOL asks the employee how much overtime they have worked and were not paid 1.5 times their pay rate for the last three years.  It’s due and payable, and if there were multiple people in the job, they all get to tell the DOL what you owe them.

Double-check your FLSA job classifications as soon as possible.