Are Your Employees Classified Correctly?  Don’t Know? Read on …

HR News for Cities

Are Your Employees Classified Correctly?  Don’t Know? Read on …

In April 2018, the Kentucky Labor Cabinet recouped $101,424.73 in unpaid wages for Kentucky workers. Violations by employers included unpaid overtime, including overtime based on misclassification, withheld final paychecks and unpaid breaks. One of the ways employers can prevent these costly mistakes is to be certain that they are classifying their employees correctly. 

The Fair Labor Standards Act (FLSA), as well as Kentucky Revise Statute (KRS) 337.275, requires cities to pay their employees at least the federal minimum wage, which is currently $7.25 an hour.  Also under federal and state law, nonexempt employees are also required to be paid overtime pay for all hours worked over 40 in a workweek.  The biggest FLSA mistake that cities make is classifying employees that are nonexempt as exempt from overtime.  Keep in mind that it is much better to review compliance before the Department of Labor comes in to review for you.  

1. What is the Fair Labor Standards Act (FLSA)?

The Fair Labor Standards Act is a federal law that was established by the U.S. Congress in 1938 and has been amended several times since then, most recently this year. The FLSA defines the federal minimum wage, employee time recordkeeping requirements, and jobs required to receive overtime compensation after 40 hours have been worked in a workweek. 

2. What does the term "nonexempt" mean?

Employees classified as nonexempt are covered by the overtime provisions of the FLSA and must record each hour worked on the time record. If the employee works more than 40 hours in one workweek, the employee is paid time and one-half, whether in pay or in accrual of compensatory time.  Almost all city employees will fall into this category.

3. What does the term "exempt" mean?

Employees classified as exempt are not covered by the overtime provisions of the FLSA and are paid an agreed amount for the whole job, regardless of the amount of time or effort required to complete the work. In most cases, exempt employees do not record hours of work on the time record.

4. What are the criteria that enable employees to be exempt from the FLSA overtime provisions?

To be classified as exempt, an employee must meet all of the standards in the following "tests":

1. Be paid over a minimum salary as outlined in 5;  
2. Be paid on a salary basis as opposed to an hourly basis; and
3. Perform certain duties as outlined in one of the duties tests as outlined in 7.

5. What is the salary level test?

Currently, the FLSA salary level test requires that an employee's salary must be at least $455 a week, or $23,660 annually in order to be considered exempt from the overtime provisions. Note, this threshold is the subject of a proposed rule change discussed here. An employee with a salary less than $455 a week must be nonexempt. Part-time employees may be nonexempt even though their annualized salary is well over $455 a week.

6. What does being paid a salary mean in terms of the FLSA?

Under normal circumstances, employees paid a salary are paid a predetermined amount each week regardless of quantity or quality of work or hours worked.

7. What criteria are used to determine if employees over the wage threshold are exempt from overtime?

To be exempt, an employee must qualify under one or more of the following tests:

1. Executive exemption test
2. Administrative exemption test
3. Professional exemption test
4. Computer exemption test
5. Highly compensated employee exemption test

Each duties test has specific requirements that must be met for an employee to be exempt. For example, the executive exemption requires that an employee: (a) supervise two or more full-time employees, (b) have authority to hire and fire, or meaningfully recommend hiring and firing, and (c) manage a recognized department. Additional information on each of the exemption tests is available on the Department of Labor website at http://www.dol.gov/elaws/esa/flsa/overtime/menu.htm or Chapter 11 of the 2017 KLC City Officials Legal Handbook.

8. What is the definition of overtime?

Overtime, as stated above, is time worked by a nonexempt employee that exceeds the employee's normally scheduled workweek. Overtime is time worked over 40 hours in a workweek. The workweek should be defined in your personnel policies. 

9. May a nonexempt employee waive his or her rights to overtime compensation?

No. All nonexempt employees are compensated for all hours actually worked at the appropriate rate of pay.