Employers, Be Careful How You Classify Employees

One of the easiest wage-and-hour mistakes a business can make is assuming that a salaried employee is automatically exempt from overtime.

That is not always true.

Under the Fair Labor Standards Act, most covered employees are entitled to overtime when they work more than 40 hours in a workweek unless a specific exemption applies. Job titles and salary alone do not determine exempt status. The employee’s actual duties matter.

This becomes a problem when employers work backwards. A company decides that a position should not receive overtime, labels the employee “salaried” or “exempt,” and assumes the issue is resolved.

It is not.

A manager who spends most of the day performing the same work as everyone else may not qualify for the executive exemption. An office employee who performs important work may not automatically qualify for the administrative exemption either.

Employers should also remember that jobs change. Responsibilities evolve, companies reorganize, and employees may take on or lose duties over time. A classification that was appropriate when someone was hired may not remain appropriate years later.

That is why employers should periodically review exempt classifications and ask a simple question:

Why does this employee qualify for the exemption?

If the answer is simply, “because the employee is salaried,” “because we call the employee a manager,” or “because everyone in that department is exempt,” it may be time for another look.

Misclassification does not have to be intentional to create liability. Unpaid overtime can accumulate quietly over months or years.

The key point is simple: salary and exempt are not the same thing.

Employers should classify employees based on the law and the work they actually perform, not based on the payroll result the company would prefer.