Misclassification of employees as exempt or nonexempt under the Fair Labor Standards Act (FLSA) can result in serious consequences, including back wages, penalties, and legal disputes. To correct these mistakes and prevent future ones, follow the steps below:
- Understand the Differences:
- Exempt Employees: Generally salaried and aren’t entitled to overtime pay. They typically perform executive, professional, or administrative duties.
- Nonexempt Employees: Typically hourly workers and are entitled to overtime pay for hours worked over 40 in a workweek.
- Conduct an Internal Audit:
- Review all employee roles, job descriptions, and compensation structures.
- Speak with department heads or managers to better understand day-to-day responsibilities of roles in question.
- Interview Employees: Engage in discussions with employees about their daily duties, especially if there’s ambiguity about their classification.
- Consult FLSA Guidelines: Review the criteria for exempt and nonexempt classifications under FLSA. Specifically:
- Salary Basis Test: The employee receives a set salary, not an hourly wage.
- Salary Level Test: The employee earns above a specific threshold (refer to current FLSA standards).
- Duties Test: The employee’s primary duties are executive, administrative, or professional in nature.
- Reclassify Employees:
- If you identify misclassified employees, change their classification immediately.
- For employees previously misclassified as exempt but are nonexempt, calculate and pay any owed back overtime.
- Update HR and Payroll Systems: Ensure your payroll system reflects the correct classifications to accurately process paychecks, especially for nonexempt employees who may be entitled to overtime.
- Document Everything: Keep detailed records of the entire review and rectification process. This includes communications with employees, changes made, and reasons for the changes.
- Train HR and Management Teams: Educate them on the distinctions between exempt and nonexempt classifications, emphasizing the importance of accurate classification.
- Establish a Review Process: Implement a regular review system to ensure ongoing compliance. Consider doing this annually or whenever there’s a significant change in roles, duties, or FLSA regulations.
- Communicate with Affected Employees:
- Explain the classification changes, the implications for their pay and working hours, and any back pay they may receive.
- Offer an open line of communication for any questions or concerns they might have.
- Seek Legal Counsel: Engage an employment attorney to review your classifications, especially if you suspect significant misclassifications. They can provide guidance on compliance and potential liability.
- Stay Updated on FLSA Changes: Regulations can evolve. Stay informed about any changes to the FLSA and state-specific laws to ensure continuous compliance.
Remember, it’s not just federal law you need to be aware of. Some states have labor laws that might be more stringent than the FLSA. Always ensure you’re compliant with both federal and state regulations when classifying employees.