Employee Classifications: This is a big question for most employers. Do I pay employees a salary or an hourly wage? To decide the answer, you first must determine if the person can qualify as Exempt or not:
- Non-Exempt/ Hourly: Most employees fall into this group. They are paid at an hourly rate. Such employees are non-exempt (eligible) for rules concerning overtime, minimum wage, meal periods, breaks, etc.
- Exempt/ Salary: These employees are higher paid. They get a fixed salary, sales commission, or mixture of both. Generally these jobs require an advanced degree, pay in commissions, or are an executive position.
Why would I want an Exempt Employee? This employee is exempt from overtime and other labor rules. They are paid the same salary, whether they work 30 hours or 50 hours. The advantage of a salaried employees is that you do not need to track their work hours nor do you have to worry about OT. However, be sure you can classify that employee as exempt. You cannot just pick anyone for this classification.
Who can be classified as Exempt? Only certain types of employees can be classified as exempt according to the federal government. They fall in the following categories:
- Upper Management
- Certain Other Management
- Certain Creative Professionals
- Certain Advanced-degree Professionals
- Certain Highly Commissioned Sales People
- Certain Other Select Specialized Fields (see the DOL link below)
Be cautious in classifying anyone as exempt: You may face a future Wage and Hour Compliance lawsuit if you do this wrong, claiming unpaid overtime and more. Such lawsuits have been on the rise, as employees claim they were not really eligible to be classified as exempt. Manager responsibilities MUST differentiate from the responsibilities of an hourly employee and must include direct supervisory duties. A Creative Professional MUST have a lot of leeway in their hours as they create a new program, design a new artwork, etc. You cannot just claim that someone fits in one of the above categories; they need to actually belong there.
Minimum Pay Required for Exempt Employees: There are also minimum pay requirements for any exempt positions, since they are considered management or professional positions. Do your research before deciding that a job will be an exempt position.
Where can I learn more? The Department of Labor (DOL) provides an easy online tool to check whether a position should be exempt or not:
Get your Employee Classifications in Writing: State your employee classifications in your company’s Employee Handbook. Also, explain the allowed deductions for exempt employees. For help designing a new Employee Handbook, see New Wind Business Solution’s website:
Get a 10% DISCOUNT today when ordering an Employee Handbook from the website above. Just enter the following promo code: HRQA.