Best Practices for Classifying Employees

Did you know that just because you are paying an employee on a salary basis, it does not immediately make that employee ineligible for overtime? The crucial distinction is whether the employee is exempt or non-exempt from wage regulations that cover overtime. The employer’s method of payment such as hourly, salary, or commission, is only one element of the exempt classification. The following question leads to other best practices for classifying employees.

Q: What are we required to do in order to specify that an employee is a salaried exempt employee? Are there any documents that we have to complete?

A: Under the Fair Labor Standard Act (FLSA), which establishes federal wage and hour law, an employer is not required to fill out any particular form to indicate that an employee is salaried exempt or a different classification. This is a designation that the employer must make internally in order to ensure that the employee is paid appropriately (e.g. not paid overtime, or not docked pay for partial-day absences).

While the FLSA does not require any particular documentation of status, any employer that is the subject of a Department of Labor Wage and Hour Division audit or a wage and hour claim from an employee must be able to prove that they were paying the employee according to all applicable wage and hour laws. Any position that is classified as salaried exempt must meet the federal criteria to be considered exempt from overtime wage laws.

You should be aware that an employee can prevail in a wage and hour lawsuit when the employer is lacking records to defend its wage payment practices. For purposes of defending possible overtime lawsuits, an employer should make sure employees’ duties pass the relevant tests and maintain a clear record showing that an exempt employee was properly paid a salary. It is also useful for an employer to have a written record establishing its good faith efforts to comply with FLSA and a policy against prohibited salary deductions when classifying employees as exempt.

As a best practice, an employee’s job description and your payroll records should indicate whether the employee is exempt or non-exempt, and hourly or salaried. The employee should have a clear understanding of their classification status and wage payment method.

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