Whether beginning a business or managing a successful one, business owners are faced with countless administrative decisions, including employment and budget, when in the process of putting down roots. Therefore, it is important to be aware of the rules and regulations set in place for employees when it comes to compensation. It is critical for employers to be knowledgeable on the ins-and-outs of salaried versus hourly wages to avoid potentially getting into unnecessary legal trouble. Ask yourself, are you aware of the potential dangers employers face when they decide to pay salaries to employees that are traditionally hourly in order to save money on overtime?
The first and most important step to make sure you’re in compliance is to study and become familiar with the Fair Labor Standards Act (FLSA), which governs the majority of jobs and classifies employees as either “exempt” or “non-exempt.” If an employee is classified as exempt (vs. non-exempt), their employer is not required to offer them overtime pay. This is because they are salaried workers.
This can be confusing to many business owners because it is not always a clear-cut definition. A great example is that a sales consultant can be exempt, while a customer service representative who works in a call center will most likely be non-exempt. To avoid confusion, some employers have tried to avoid the required overtime pay by deciding to pay their employees a salary instead. However, this can be a costly decision.
I recently worked on a case in which an employer decided to put all of his employees, regardless of their job title or position, on salary. However, when the Department of Labor decided to stop by for a random inspection, the official determined that the warehouse workers should not be in salaried positions. Since many worked well over 40 hours some weeks, they were actually owed thousands of dollars in overtime wages.
To the employee, hourly wage can often seem like the better deal, but it may not be the proper protocol. However, from the employer’s perspective, there is more to consider that cannot be overlooked. Here are a few things to keep in mind when determining whether or not it’s appropriate to pay your employees a salary instead of hourly wage:
▪ Be familiar with Florida’s “wages and hours” laws. Overtime is a critical consideration in determining how to pay your staff. Non-exempt employees — those paid hourly — must be paid overtime once they work more than 40 hours per week. Exempt employees are not eligible for overtime. The tricky part is knowing the exemptions — even some salaried employees can actually be considered non-exempt and subject to overtime pay depending on the state.
▪ Fully grasp the individual duties of each position in your company. Consider the types of duties that your employees perform on a daily basis — the FLSA recognizes three main categories of exempt workers: executive, professional and administrative. These categories encompass many types of jobs; therefore, it is the tasks required by the job and not the job title, which determine exempt vs. non-exempt status. Being familiar with these tasks is what also makes you a strong and admired business leader.
▪ Comprehend the economics of your industry. There is a good reason for whichever pay structure is most common, determined long before your business began. Don’t try to get around it just because it seems easier or more economical.
▪ It is imperative to promptly address any issues that might cause your company to be in noncompliance, as the penalties can be severe. If you are unsure or have questions, you should contact a legal professional. Courts regularly award liquidated damages, which are double any amount of unpaid overtime going back two years from the time of a complaint. If you consider multiplying this by a large number of employees, including past employees, this can add up to a significant amount of money that you may not be ready to pay.
Jay M. Levy has been a member of The Florida Bar since 1976. His practice is dedicated to trial and appellate work involving business law, commercial law, employment law, family law and civil rights matters, and trial assistance to other lawyers. He can be reached at www.jaylevylaw.com.
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