04 Feb From the HR Support Center: Not All Salaried Employees Are Exempt from Overtime
Most employers have at least a few employees that they classify as exempt from minimum wage and overtime, but many don’t realize that they need to do more than pay these people a salary in order to make the exemption legal. Most employees that are classified as exempt must be paid on a salary basis (which means most deductions from pay are not allowed) and pass a specific duties test, depending on which exemption the employer is using.
Perhaps the most commonly used exemption is the Executive Exemption – it’s generally applied to managers. But calling someone a manager isn’t enough. An employee must pass all parts of this test to be exempt; if they don’t, they must instead be paid based on hours worked, including time and a half for hours worked over 40 in a workweek. Let’s take a look at the test:
- The employee’s primary duty is the management of an enterprise, department, or subdivision; and
- They customarily and regularly direct the work of two or more full-time employees (or equivalent); and
- They have the authority to hire, fire, or promote other employees or effectively recommend similar actions.
Fairly common mistakes we see include classifying someone as an exempt executive when they don’t manage two or more full-time employees (there’s no exception to this rule for small businesses) and classifying assistant managers as exempt when management is not their primary duty or when they don’t have significant authority over those they manage.
To learn more about exemptions from overtime and the various duties tests that need to be applied, go to the HR Support Center and search for exemption. There are resources in many formats, including 2-Minute HR Trainings, guides, checklists, articles, Q&As, and Law pages.
The HR Support Center is a service offered to Payroll Partners clients, and provides access to exclusive, industry-leading HR tools and resources, for just a few dollars a month. From employee handbooks, job descriptions and other commonly used HR documents, to up-to-the-minute law alerts, easy-to-understand state and federal law libraries, and unique training videos, the HR Support Center will help you effectively manage your HR compliance and employee relations needs.
Legal Disclaimer: Payroll Partners and/or the HR Support Center are not engaged in the practice of law. The content in this email should not be construed as legal advice, and does not create an attorney-client relationship. If you have legal questions concerning your situation or the information you have obtained, you should consult with a licensed attorney. Payroll Partners and/or the HR Support Center cannot be held legally accountable for actions related to this article.