“Ask Sarah” Column

Dear Sarah,

I’m a small business owner here in town. Don’t you think it’s a bit of a pain to track employees clocking in and clocking out every day? What if I just pay all my employees a salary, and they get the same amount of money each week regardless of how much they work? It’s so much easier, and my employees would benefit too on the weeks they worked fewer hours than normal. Seems like a no brainer to me!

Small Business Owner

Dear Small Business Owner,

It would be so easy, wouldn’t it! Unfortunately, paying an employee a salary does not eliminate the obligation to calculate and pay overtime if the employee is entitled to it. This is a frequently misunderstood aspect of compliance with the Fair Labor Standards Act, or the FLSA.

Central to this question is the distinction between exempt and non-exempt status under the FLSA. Employers often think that the primary characteristic for an exempt employee (one who is exempt from overtime requirements) is whether they are paid on a salary or hourly basis. In fact, a central tenet to classifying an employee as exempt is that they must have job duties that qualify them for the exemption.

If an employee’s job duties do not qualify them for an exemption, then they cannot be classified as exempt, even if they are paid a salary, and as a result, they are entitled to overtime pay under the FLSA if they exceed the statutory 40-hour workweek threshold. In other words, the manner of compensation—be it salary or hourly—does not remove the entitlement to overtime pay for non-exempt employees.

In practical terms, this means that salaried employees who are non-exempt must still track their hours worked so that you can pay them overtime any time they work more than 40 hours in a workweek. Many employers find that the obligation to continue to track hours despite the salary is enough to move towards just paying the employee an hourly rate.

In summary, each employee in your organization should be classified as either exempt or non-exempt, and the classification should be documented, preferably in their offer letter and in their job description. Those who are exempt must be paid on a salary basis, and they must have job duties that qualify them for an exemption. Those who are non-exempt may be paid a salary or on an hourly basis, and their hours must be tracked so you can pay overtime on any hours worked over 40 in a single workweek.

Finally, remember that wage and hour compliance is an employer obligation. If your employees are not keeping accurate time records, you should require them to do so, including through corrective discipline if they continue to have problems. Strictly following these requirements protects you (the employer) from claims and protects employees from mistakes or improper payments. The Department of Labor Wage and Hour Division has helpful resources on employee classification and other aspects of compliance. Our employment law practice group can help too, and we take pride in explaining these complicated compliance issues in a straightforward manner.

“Ask Sarah” is prepared by Sarah Glaser, Chair of the Firm’s Employment Law Practice Group. If you would like additional information or have questions related to this article or other employment matters, please contact Sarah at 512.322.5881 or sglaser@lglawfirm.com.

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