In the first part of this series we discussed the differences between an independent contractor (I/C) and employee and the risk of classifying an individual incorrectly. In this installment we will discuss the importance of classification of employee type.
As with determining whether an individual is an I/C or an employee, the next step, determining the classification of exempt or non-exempt employee is equally as important. The Fair Labor Standards Act (FLSA) requires that employers classify jobs as either exempt or nonexempt. Nonexempt employees are covered by FLSA rules and regulations, and exempt employees are not.
Exempt positions are generally salaried positions as opposed to hourly, excluded from overtime and other rules and regulations afforded nonexempt workers. Managerial, supervisory, professional positions are some positions that are typically exempt.
Exempt employees are generally expected to work the number of hours necessary to complete their responsibilities regardless of whether that requires 30 hours or 50 hours per week without any change to their salary.
Non-exempt employees are not exempt from FLSA requirements and must be paid at least the federal minimum wage for each hour worked and given overtime pay of not less than 1.5 times their hourly rate for any hours worked beyond 40 each week. In addition, some states require O/T pay for any time worked over 8 hours per day.
In order to classify an employee as exempt, the position must meet certain criteria which in states like California are more stringent than those under Federal law. California Chamber of Commerce has a great guide to help you determine “exempt” or “non-exempt” employment status here:
In general, as California’s rules are more stringent than other states, if you comply with their requirements your business will likely also be in compliance in your state as well, but check with your state regulators to ensure you are meeting all requirements.
As with the misclassifying an individual as an I/C instead of an employee, misclassifying an employee as exempt can have drastic consequences. Employees many times want to be classified as non-exempt and are incentivized to report their employers to the state for misclassification and states are aggressive in pursuing these claims.
If found to be improperly classified as exempt, an employer will be liable for back wages including O/T, taxes, penalties, interest and attorney’s fees. In many cases these claims will cover several years and numerous employees. We’ve seen cases with all types of companies with large settlements ranging from tens of thousands to tens of millions. Violating these regulations is no joke.
By utilizing CannaBOS staffing services, you can avoid all of these headaches and not have to worry about classification as we handle all employment and administrative compliance issues. Give us a call.