“You cannot contract around the law.”

In episode #90 of Mission to Grow, the Asure podcast that serves as small business owners’ guide to cash, compliance and the War for Talent, Asure’s VP of HR Consulting, Mary Simmons, joins host Mike Vannoy to  discuss the significance of properly classifying employees as exempt vs. non-exempt. Simmons highlights the importance of small business owners understanding labor laws for compliance. They discuss common misconceptions and mistakes businesses make when determining employee classification.

  • Understanding the Fair Labor Standards Act is crucial for growing companies when classifying employees as salary or hourly. Employers must follow specific regulations to ensure compliance with wage and hour laws.
  • In considering the differences between hourly and salaried employees, it’s crucial to understand the distinction between exempt and non-exempt status. Exempt employees are not entitled to overtime pay, while non-exempt employees are eligible for overtime.
  • Employers should ensure that hourly workers are paid for every minute they work, including tasks like answering emails or calls. Adhering to wage and hour laws is crucial to avoid legal issues related to off-the-clock work.
  • Rewarding exempt employees with extra pay for overtime is possible, but it must be done carefully to avoid breaking the exemption. Consulting with a professional before implementing such rewards is crucial to ensure compliance and fairness.
  • Responsibilities, not title, are a determining factor in an employee’s exempt status. While a retail employee may be a manager, if most of their duties involve working with customers and stocking shelves, they may actually be non exempt.
  • Employers need to ensure they meet the minimum salary requirements for exempt employees, as failure to do so can lead to costly consequences. Exempt employees must be paid at least $684 a week.
  • While there is a baseline of Federal labor regulations employers need to follow, it’s important to be mindful of state regulations as well. Certain states, and even municipalities, have more stringent requirements for wages.
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Read the Transcript:

Mary Simmons: I always use the example, you know, when you’re speeding, um, and you get pulled over, you know, ignorance is never a defense, right? To say, oh, I didn’t know the speed limit was only 25 and I was going 50. that’s not going to pass muster nor is if the Department of Labor comes in and does an audit.

Okay. And you say, oh, I had no idea there was a difference between exempt or non exempt

Mike Vannoy: Salaried or hourly, understanding exempt classifications. Hi, I’m Mike Vannoy, your host of Mission to Grow. This is a really, really, really important topic for small business owners, especially midsize all that this we’re talking laws. You must comply with that. Many don’t realize it. Uh, got a super cool guest.

To unpack this topic for us, she’s a SHRM certified professional. The last 8 years, she’s been an adjunct professor at the New York Institute of Technology. She was director of HR consulting for a 58 year old HR consulting firm in New York. And she is our Vice President of HR Compliance at Asure.

Welcome to the show, Mary Simmons.

Mary Simmons: Thank you, Mike.

Mike Vannoy: Okay. So this one’s, this one’s I think deceiving. Cause a lot of business owners think they have a choice here, right? This, that’s why we named the show Salary vs. Hourly, but if you’re a business owner, if you’re a manager, what’s the one thing that growing companies must understand about classifying salary versus hourly employees?

Mary Simmons: Yeah, that’s it’s a great question. I get asked it all the time. And what the 1st thing they need to understand is there’s a piece of federal legislation that they have to follow. And that’s the Fair Labor Standards Act, commonly called wage and hour law. And so they have, they don’t have the choice and a lot of times I’ll hear from the employers, but my employee, Mike wants to be salaried and I’m like, yeah, but you have to follow.

These regulations, and they’re very specific, so they have to be very careful to follow these regulations that we’re going to discuss today.

Mike Vannoy: Yeah. So I think this is classic mistake. It’s like. A lot of times an employer will say, Oh, you know what? I just want to even out their pay and make their pay more predictable, right? Or, uh, Hey, I want to give them an opportunity for overtime, but this isn’t really your decision to make. This isn’t opinion.

This isn’t the employee’s opinion. There are laws that dictate how you classify employees, right?

Mary Simmons: Exactly. And I think the other piece that they need to understand not to scare people here, but. That there’s real fines, there’s huge fines, right? So, if you misclassify somebody, the wage and hour claims right now outtrend your, uh, any other kind of claims, right? Anti harassment gets lots of publicity, but wage and hour out trends it, you know, 4 to 1.

Mike Vannoy: Yeah. So, so maybe you just take us through what are the fundamental differences between, and I’ll use the term hourly versus salary, because I think this is a lot of how, uh, business owners think about it, but it really is exempt versus non exempt maybe just first help with the definition of what that actually means.

Uh, and then what are the, what are the, what are the legal differences?

Mary Simmons: Exactly. So, salaried is exempt employees, so they are exempt from overtime. The hourly employee is non exempt. So they are not exempt from overtime, meaning that when they work over 40 hours in a week, or in California, over 8 hours in a day, they’re entitled to overtime pay and that overtime pay is Um, based on the Fair Labor Standards Act, of course, employers can do more is time and a half of their salary, their hourly rate.

Mike Vannoy: And so what is the impact on compensation to the employee, one versus the other? So, so it’s exempt from overtime. is it, is it just as simple as that one class gets overtime? The other one doesn’t, uh, how does an employer think about that?

Mary Simmons: Yeah, so there, there are a lot of nuances here that we have to think about. So let’s just break it down a little bit more. That salaried employee gets a set. Base salary on a weekly basis, but it’s based on their annual salary. So literally, no matter how many hours that employee works, they’re going to get the same salary, the same set.

Uh, paycheck once a week that hourly worker on the other hand is paid an hourly rate. And again, that hourly rate is going to be based on, um, the either the federal minimum wage, or if the state has a higher minimum wage, the employee has to get the better, um, of that, you know, minimum wage, be it the state or the federal and so that hourly worker might gets paid for.

All the time they work and this again, when we talk about how this affects the bottom line for the employer is we really have to think about getting paid for every hour that you work. And and I would even say it’s every. minute that they work. So as an employer, when you think, Oh, Mike left for his shift, but I have an unanswered question for, for a client.

And we call Mike, if he’s an hourly worker, he gets paid for the time he’s working, even if it’s answering an email, answering a call, answering a text, et cetera. So that’s a big difference for employers to think about. Because we all know, right, that it most times are, our pay for our employees is our largest expense.

Mike Vannoy: that’s where an area where so many employers get in trouble in these wage and hour laws. Right. Because, well, I just, the client just had a question. So I just shot him a quick text, right? Well, if they’re, if they’re off the clock and you shoot them a text and they respond to that text, That was, that was hourly work, right?

That, that you are legally required to pay them for

Mary Simmons: I yeah, yeah, I think they, they also get in trouble because they try to, you know, make up, you know, some rules or maybe not thoroughly understand the rules that we’re discussing here, which is that they get time and a half when they work over 40 or over 8 hours in California, even if the employee says, oh, don’t worry about it.

Mike. I don’t need time and a half because I worked 45 hours. Can I just come in five hours late on Monday? So it sounds good to the employer. They think they’re making the employee happy. You cannot contract around the law, meaning you can’t make up, um, or go awry of these regulations. They have to be followed.

Very specifically,

Mike Vannoy: So, so what are some of the requirements for actually classifying? How does an employer know how to classify employees properly?

Mary Simmons: so when they’re thinking about classifying the employee exempt versus non exempt, there’s the 1st thing that you want to consider. And let’s talk about exempt. 1st, the exempt employee again is exempt from overtime and they’re being paid a salary. In most cases. There are some exceptions, Mike, um, but for now, let’s just focus on that exempt employee.

So just a quick thing that I want to tell employers is that be very careful about breaking that exemption. If you have called that employee exempt, don’t treat them like a non exempt employee by saying, Oh, Mike, I see that you worked 45 hours. You’re such a hard worker. I want to reward you by paying you time and a half for the five hours you worked overtime.

If it’s an exempt employee, what the Fair Labor Standards Act will say is you, you may break their exemption by treating them like a non exempt employee and paying them overtime. So be very careful again, when we’re classifying an employee as exempt. Treat them as an exempt employee.

Mike Vannoy: Can I give a couple of use cases? Tell me, tell me if this. If this, am I getting this right? So if I’m an employer, I have a manager of a, of a, of a retail operation and they regularly work more than 40 hours a week, maybe they’re regularly 45, 55 hours, sometimes even more during the busy season. Um, and I don’t change their pay, uh, because it was a longer work hour week versus a short.

That’s, that’s what the exemption is really for higher salaries for folks because some of those regular, those hours are irregular, but if I have a manager who is just. Based on the definition of their job, they work a 40 hour week. Um, and I decided to thank them for having, you know, it was a long week this week and maybe not time and a half, but maybe I decided I’m just going to spot bonus you, could wage an hour come in and say, Oh, you bonus people when they work extra hours, you’re really treating them.

Even though it’s not time and a half, you’re compensating them for hours worked. You just broke the exempt exemption. I am I scratching it too thin there

Mary Simmons: no, I think that’s a, that’s a example because I do want to say that you can reward your exempt employees and you can reward them by giving them extra pay when they work overtime. It’s the way that you reward them and the way that that pay is dispersed. So you actually said, I want to give them a spot bonus that you can do, um, but there’s certain ways to do it.

And really, I want, you know, you to, whether it’s my team or other professionals, or your, your, you know. Payroll professionals that are assisting you with your payroll, you really want to consult with a professional before you do that. It’s something that really needs to be done in a very precise way so that you don’t break that exemption.

So that was a great differentiator to explain to people that it can be done. It’s the way you do it. So you don’t break that exemption. So you’re not treating them like a non exempt person. Is a great example, Mike.

Mike Vannoy: and, and Mary, am I thinking this is, this is maybe too, just too rare of a case to be super useful, but just so I understand it, it probably matters whether you’re treating that. Extra compensation is, Hey, I’m going to pay you the hourly rate, or I’m going to bonus you based on X number of hours. If, if you treat the compensation, whether it’s bonus or a calculation, if it’s based on hours worked, I would think you’re on really thin ice.

If you base it on, Hey, great jobs, you worked super hard this week. I just want to recognize you for that extra effort and maybe the extra level of stress and difficult customer you dealt with this week, then that’s probably safe ground. Is that, is that a reasonable division?

Mary Simmons: It is. It is. Um, and see, I think the basic differentiator that we, you know, maybe, um, I need to define again is your salaried person is not getting an hourly rate.

Mike Vannoy: Right.

Mary Simmons: to say, I’m going to pay you time and a half of your hourly hourly rate is an incorrect, um, you know, calculation, right? Because they’re working variable hours, um, in most cases.

So there isn’t, um, that that calculation would be very difficult to put your finger on. And again, They do not, they are exempt from overtime pay. So that, that’s the basic assumption that you want to work on here.

Mike Vannoy: So maybe, maybe the last thing I’ll say on that and we can move on. If you, if you bonus the employee. And you have, if you define the criteria, maybe it’s certain level of productivity. Maybe it’s just, Hey, happy birthday, whatever, that’s the reason. You’re probably safe ground. But if you treat that salaried employee and say, Hey, your salary equates to this as an hourly rate.

I want to pay you time and a half on that. You’re clearly treating that person as an hourly employee. That’s where you would get in trouble.

Mary Simmons: correct. Perfect. You’re learning. You’re doing great.

Mike Vannoy: I’m a, I’m a slow student, but getting

Mary Simmons: at all. Not at all. I think that’s helpful for everybody listening. And then, so let me just go a little bit further. So, when we talk about the exempt employee classification, typically, the Fair Labor Standards Act has set forth guidelines, and it’s usually going to be 1 of the white collar exemptions.

So that would be the administrative, the professional, the executive. Or it’ll be the computer or the outside sales roles. Now, there are other exemptions, um, that, you know, we have discussed on, on other podcasts, but we’re going to really just try to define the difference between exempt and non exempt and those are the most, um, readily used exemptions.

Um, so that’s the other factor. So, number 1. They’re exempt from overtime. Number 2, they’re by definition of the Fair Labor Standards Act. They fall under the administrative, professional, executive, white collar exemption, or the computer exemption, or the outside sales exemption. And so when. You know, somebody listening may say, okay, how do I know whether they follow under those exemptions?

The Department of Labor has defined duties tests for each of those exemptions. So, what does that mean? So, Again, a lot of times employers will say, well, Mary, I really want Mike to be exempt because that’s what he wants. He wants a set salary so that he can, you know, help with his finances at home. Well, that’s super nice, but the Fair Labor Standards Act says that we need to follow the duties text test.

It’s the responsibilities that each position. Um, has that defines whether or not they’re exempt or non exempt. So, for example, to fall under the, um, executive exemption that I just discussed, which is a very popular 1, 1 of the main criteria for the duties test is that you manage 2 or more people for the majority of your day.

So, a Home Depot manager. May not pass that duties test, because although they may manage more than two people, most of their day, they’re stocking shelves and helping clients, which is a non exempt responsibility. So there’s a lot of, of criteria, definition, and really examination of the duties that each employee does.

And let me say. Instead of employee, I want to say position, right? Because if you and I are both cashiers, and let’s just use, you know, a big box store as an example, if we’re both cashiers, if we have the same exact job title, then our job, um, duties should be the same and our exemption should be the same.

Now that you could change that if. You were a team lead, cashier, and I was just a cashier, for sure. But if we have the same job, um, title, we have the same job description, and that duties test is going to come out the same, um, for our exempt or non exempt classification.

Mike Vannoy: I think we probably need to dedicate, excuse me, dedicate a show to nothing, but the details of those categories. Can you maybe just talk a little bit about the most common areas and maybe the common reasons why people get mis, misclassified, uh, you know, what, what are the exemption categories that people think they qualify, but maybe don’t.

Mary Simmons: Yeah, that’s a great question. I think that instead of really looking at the Duties that the employee is doing, responsibilities that the employee is doing, and then comparing it to the Department of Labor’s criteria is what, what kind of gets people into trouble, right? I think they think, um. That the job title will drive the exemption.

So, if I call somebody a manager, they’re automatically, um, have the executive exemption. I think the administrative exemption is very misunderstood and rightly so, right? When you hear, oh, There’s an administrative exemption. I have an administrative, um, executive, um, they’re automatically exempt, you know, so they’re thinking the title drives the exemption.

It’s those responsibilities that drive that exempt exemption. So that is the misunderstanding and that’s why it does really take somebody who has done this time and time again. To guide you and help you. This is probably one of the most important areas and the thing that we spend a majority of our time because it touches everything that you do in an HR function, right?

Because it’s how you pay them, how they work, how they’re compensated, an evaluation, et cetera. And it protects the company from all the fines that can come if it’s done incorrectly.

Mike Vannoy: And I’ll just say, I mean, being, you know, growing up as an entrepreneur myself and, you know, time in corporate America, time as an entrepreneur and, and, and both today. Um, I understand the urge to try to slot these things in ways that help. The employee and drive the culture you want. I mean, I just tell, telling myself, I remember I had had an issue years ago where, uh, building an inside sales team.

And I just didn’t want a culture where they felt like they were punching a clock. I wanted them to feel like they were leveling up in their career and I wanted them to go above and beyond in their effort. And, uh, the reality is I couldn’t because the Wage and Hour Law is really specific. It says that job is, there is no exemption,

Mary Simmons: Right? Absolutely.

Mike Vannoy: but if it’s an outside sales job, now they might actually just work from their home and dial the phone and it might not even be that much different. But the law is clear, an outside field rep versus an inside rep. The law is clear how you must classify them.

Mary Simmons: Absolutely, it’s, it’s very clear and I, and I do think that a lot of times employers want to help their culture by making their employees happy and paying them the way they want. But I also do feel that sometimes an employer might say, well, I’m going to make that employee exempt. So that I don’t have to pay overtime.

And so the last threshold that we have to meet here to classify an employee as exempt is their pay. So, very often employers don’t realize that, uh. For a salaried employee, there’s a minimum salary that they have to give. So, right now, the Fair Labor Standards Act sets that as 684 a week. Now, many states, California, New York, Colorado, Washington state, I can go on and on and on, have a higher set salary, um, weekly.

But the federal FLSA minimum salary for an exempt employee is 684 dollars. You cannot classify an employee as exempt and pay them less than that. But even more important that I really want people to understand. Is that that is most likely increasing in April of this year to 1, 059 a week. Mike, this is the biggest piece of legislation.

I’ve seen the biggest change in probably 4 or 5 years because look at those numbers 684 to 1000. And. At 59, Mike, this is a big deal for employers. Uh, we’ve been talking about it, you and I, um, really need employers to dig in here. Uh, do a FLSA audit, which we do for employers all the time. How much is this going to cost you?

Are you classifying your employees properly? This is almost twice as much money, Mike. It’s a big deal.

Mike Vannoy: Yeah. I, I, I’m just not seeing enough in the news about this. And I’m, I’m, I’m scared to death that employers are going to get caught flat footed here.

Mary Simmons: It’s almost March.

Mike Vannoy: if you’re an employer, if you’re, if you’re in an industry where most of, most of your employees are legitimately categorized as exempt. And they’re more highly compensated.

Maybe you’re in technology or you’re in an industry, uh, that, that, that’s just the standard, then maybe you don’t have a problem on your hands, but there are hundreds of thousands of businesses. I think the estimate is something around two and a half, 3 million employees are going to be impacted by this.

That maybe your, your, maybe your retail, maybe your customer support. Uh, that you’re a quote unquote exempt, therefore salaried employee, but you’re, you’re being paid somewhere in the call it 40, 45, 000 range, perhaps talking 10, 000 or more. annual raises for folks that by law you’re going to have to give.

I mean, that’s enough to break many companies. So it’s, it’s going to, here’s what I think you and I’ve talked a lot about this.

Mary Simmons: Right.

Mike Vannoy: A, you got to get ahead of this because the law is going to require you to pay these people more, but that’s if you’ve been properly classifying them in the first place. I think what this is going to really force people to do.

is properly classify a bunch of 35, 40, 000 a year compensated people who should have been hourly all along. Am I thinking about that right?

Mary Simmons: You 100 percent are, and I, you know, a lot of times when I get on a call with a California or New York. Um, employer, they sort of know, you know, hey, there’s a lot of employment laws here. You know, I really need your help. And, but some states don’t have as many, uh, state employment laws, so they’re not.

Focusing on the federal laws, and so the federal minimum wage is only 7. 25 an hour. So, if you’re in a state that hasn’t increased that minimum wage, right? That hourly, um, wage for for employees, you’re. Salaried employees probably mirror that, right? So if you’re only paying your hourly people 7. 25, because that’s all you have to pay, which is absolutely fine, and you’re paying your exempt employees 680 for a week, I hope this is going to be huge.

It’s going to be huge. And you also are going to have some compression, right? So if you have that entry level manager that, like you said, is making 45, but their manager is making 55, now they’re both making 55. So it’s not just bringing that, that lower level manager up to this new minimum. And when I say it may come to pass, right, it, it’s not definitive yet.

And it got shot down once, uh, about three or four years ago, but I really think it’s going to go through this year, but don’t just think about bringing that person up and that cost to you. What happens to. The manager, now you’re going to have an entry level manager making the same as an experienced manager.

So this may cost employers even more money. And again, Mike, we never say this, you know, I don’t mean to scare employers. Let’s just look at it, you know, I’m always happy to get on a quick call with anybody and just walk through this slowly for your organization, but this can have a huge monetary. On a lot of employers,

Mike Vannoy: Yeah. Yeah. No, no question. Um, and if you think about going back to intent, I believe, like, I don’t, I don’t believe The, the, it’s the government’s intent here to, to just simply pay people more. I think the intent here is to make sure that people are classified properly so that they do get compensated for their, for, for overtime.

Right. So, uh, I, I, I think we both know, and, and, and I’ll give entrepreneurs the benefit of the doubt. I, I don’t, I don’t think there’s a bunch of entrepreneurs trying to really just squeeze every single penny out of, out, out of their, their, their, their teams. The reality is people have choices. Unemployment is 3.

7%. Employees will leave if they’re not treated well. But

Mary Simmons: 100 percent right,

Mike Vannoy: if you don’t, if you don’t qualify for the duties to be an exempt employee, but you’re working 45, 50, 55 hours a week, You’re legally entitled to overtime, right? Um, and this is going to make sure that those employees either they’re getting paid more or they’re just going to get classified right, which then creates another problem for employers.

How do I, how do I manage this? Do I, am I gonna, if I got a team of 10 people, am I going to have to now be a team of 11 people that, you know, the same hours?

Mary Simmons: Yeah, communicating it, right? How are you communicating? You know, you have a manager and you re examine it and you say, you know, they really don’t fit that executive exemption. They should have been non exempt. I’m going to make them hourly. How do you communicate that? You know, you could see where some managers may feel that that’s negative.

And, and I would add, um, that this salary, this minimum salary for exempt employees, I don’t think it’s increased in 15 years. So that’s why the jump is so significant, because they haven’t increased it slowly, uh, with inflation. So, hopefully. You know, that’s done in a, in a more precise, uh, and prescriptive way going forward.

Mike Vannoy: Yeah, Barry, what other, what other other factors should employers be thinking about? You know, so, so first of all, there’s just the law. What does the FLSA say about the duties exemptions? Do they qualify or don’t they, don’t they qualify? We’ll do a separate show. Just on those topics, administrative, professional, executive, computer, or outside sales roles.

There are very specific requirements for each will impact those at a different time. Other than the duties test, you talked about the increase in the minimum salary for exempt employees and the compression that that could cause. What other considerations should employees be thinking about here?

Mary Simmons: Um, I’m, I’m going to throw in a couple things here just for, you know, just to take a little bit deeper dive. So that was exempt. Now, when we talk about our non exempt employees, so they’re not exempt from overtime. I think it’s a little confusing. The terminology they’re paid. So, again, that hourly employee, when they go past 40 hours in a week, they’re paid time and a half.

Again, California, it’s over 8 hours in a day. Again, for employers, you cannot make exemptions to this. Now, there are some, um, like civil servant employees that. Can be paid differently, right? So there are some nuances, right? I mean, HR, I never say never and I never say always and I, but for the most of the, um, employers out there, you’re not making an exempt, you know, an exception to this.

So you have to follow the minimum. Uh, salary, um, for your state or municipality. So here in New York, New York City is paid different than upstate New York. Um, and, you know, and downstate, right? So there’s 3 different salaries, California. Same thing. L. A. can be different from another county. So, you have to be really careful that you’re paying your employees the exact.

Um, hourly rate that they should be paid, but I was speaking with an employer the other day who was saying, gee, Mary, you know, overtime is really costing me a lot of money and I might have to lay somebody off because, you know, it’s just not working. They come, you know, it was a heating and air conditioning organization.

They drive to my office. They pick up the truck and then they drive to the work site. So, even before. They start work, they’re not doing anything, but driving, um, to, you know, 1 of the work sites may be an hour away. It could be an hour and a half away. Well, there is some, you know, when it comes to your non exempt employees. For, uh, driving hours for mandated training hours, you can pay them the. Federal minimum wage for those hours versus the state minimum wage. So there’s nuances here that employers may not know enough about if you’re not really, you know, an expert like my team and I are. On the Fair Labor Standards Act, right?

So some other nuances that, um, non exempt and exempt differences are your non exempt employees. Again, they have to be paid for all hours. So, if you say, hey, we have mandatory OSHA training and the only time I can fit it in. is after five o’clock, your non exempt employees, you have to pay them for those training hours.

Again, your exempt employees, they’re paid a set rate, so they’re going to get their salary even though they worked, you know, after five o’clock or, you know, maybe that makes it 41 hours in their week instead of 40 hours. But your non exempt employees, right, they’re not exempt from overtime, they receive overtime pay.

Even though that’s training hours, Mike, they must be paid for those hours. So there, there’s a lot of information here. Those exemptions, um, affect a lot of nuances that, that happen in the pay and the compensation, um, for our employees.

Mike Vannoy: Mary, our mutual friend, Brian and I, we did a podcast on this topic, just talking about the, uh, uh, drive time. You know, from, from home to office, from client to client and what’s, what, what, what you, what you must and must not pay, let’s just maybe rattle off some of the other biggies for, so if you’re, if you’re an HVAC company, you’re a, a service organization where your, your employees go from location to location, uh, that, that’s fine, but a lot of businesses aren’t, there’s still other ways they get in trouble.

I think you hit on one, uh, I, I think another is maybe, Oh, you don’t have to come, but we encourage you to come to training because if you really care about your career, you’re going to want to develop your skills, but it’s voluntary. So we, you know, it’s, it’s, it’s, it’s not compensatory time.

What, what say you

Mary Simmons: Yeah, no, that’s, that’s a great example. I’ll give you another one. A lot of employers, um, you know, of course, we know there’s being a payroll company. A lot of employers will automatically deduct a half hour or an hour for. Now, that’s fine. That’s all well and fine, but this is why we do customized handbooks, because you better be very prescriptive in your handbook policy when you talk about what happens if they end up working during that lunch hour.

If you’re a non exempt employee. Is working during their lunch hour. You must pay them. And that includes your receptionist, who is sitting at their desk, eating their sandwich, and you ask them to still pick up the phone. So they have to be paid that they get wrong all the time. And those automatic deductions you’re going to put in your, you know, policy for, you know, lunch periods, right?

It’s automatically deducted. If you work during those hours, you know, you have to give them information on how they go to their manager or the payroll manager to get paid for those hours. It’s okay to put the onus on the employee, but you have to watch it very, very.

Mike Vannoy: and Mary, like in my example, I think a DOL auditor is going to be going to come in and say, Okay, you may have said that was optional, but if advances their career, your staff feels pressured to to participate or not participate. That’s compensatory time, right?

Mary Simmons: Yeah, it’s, yeah, there’s going to be a lot of variables there, but for the most part, it is. And, and listen, I would say training helps your organization be more productive and your employees more engaged. So, I would find a way to pay them for their training, um, because it just makes for a better organization And

Mike Vannoy: And I’ve seen organizations that do this and I know. I know that they think that they’re doing it in a legal way. Culturally, it’s just clearly understood that if you don’t go to the trainings, you’re not going to advance, not just because of the skills you don’t acquire, but because you’re not going to be considered part of the overachiever group.

Right. And if you’re setting up that kind of culture, you’re for sure. Yeah, I’m very, very, very thin ice that if there’s an audit, you can be retroactively paying all those folks for years. Right?

Mary Simmons: Right, absolutely. And, and, you know, you’re, you’re making a really good case where we will say, you should be recording the hours that you’re exempt and non exempt employees work. So, you know, you’re doing, you’re recording the hours that you’re non exempt employees work. And a lot of times, um, there’s ways to track exempt as well.

And the reason that we would say it is because if you misclassified an employee. And you said they were exempt. The DOL comes in and says, no, we feel based on the duties test that that employee was not exempt. It’s your word against that employee on how many hours they worked. So they can say they worked 60, 70, 80 hours a week, and now you owe them that back pay on overtime.

And if the employee was with you for 10 years, uh, it’s pretty easy to do the math and, and see how that can add up to a lot of hours and, and listen, it’s. It’s so easy now, um, to track hours, you know, on their cell phone, et cetera, keystrokes, et cetera. It’s, it’s so easy to track time that it really doesn’t need to be onus on the employee or the employer, but tracking time, certainly for your non exempt employees is paramount, especially when you’re, you know, in a FLSA audit and the DOL comes knocking and, and they’re looking at all your records.

You have to have really good records.

Mike Vannoy: I’m curious about one more use case. And then we’ll kind of talk to consequences and enforcement here, um, company gatherings. Maybe it’s the summer picnic. Maybe it’s a holiday party. If you’re an ex, if you’re a non exempt employee, you’re paid hourly. Technically you’d think the summer picnic is optional.

You don’t have to attend, but if you feel the pressure, like, Oh, you’re, you’re, you’re going to be looked down on poorly. It’s going to impact how your low opportunities for advancement at work. If you don’t show up to the company function, is this, is that compensatory time? Do you, do you need to be paid?

And if you show up to the, to the quote unquote voluntary company functions?

Mary Simmons: I haven’t seen that, um, from the DOL. Could it happen? Maybe. I think that’s why I always talk to employers about communication and how important communication is, right? Um, and it’s 1 thing coming from. You know, maybe there’s, uh, an email sent out from the president or the CEO of the company saying, you know, can’t wait to see everybody at the holiday party, et cetera.

But you also have to be careful to talk to the managers. How are they communicating it to their employees? You’re absolutely right. If, if now your manager says to their employees, you better be there or else. Now you’ve put that employee into a position where they feel it is mandatory and you could get in trouble from not paying them.

But if it’s communicated in a proper way, and in most cases it’s, you know, you know, hope you can come, can’t wait to see everybody. Um, and not stated in a mandatory way. The employer probably does not have to compensate the employees for doing it. But this is why manager training is paramount.

They’re your feet on the ground, right? They’re the ones that are touching your employees. So anytime there’s, you know, a mass communication, look, switching your employees from exempt to non exempt, that’s a professional conversation. We want to make sure that it’s done professionally and compliantly. So, Your managers need to be trained by a professional and, and given a script because they’re not HR professionals.

That’s not their main job. Right? So, um, you know, and just a, you know, little bit of guidelines on, you know, talking to the employees about the, um, Company picnic or holiday party. I think that’s useful as well. So that’s a really good example.

Mike Vannoy: Yeah. Okay. Um, let’s talk enforcement and consequence. How do these things, how do these things usually pop up? Because I give most employers the benefit of the doubt. There, I think it’s very rare that you have an employer who is some Machiavellian smoking cigar in the, in a dark room.

How do I take advantage of my employees? These things happen accidentally. People aren’t intentionally trying to exploit other humans. In, in, in, in break the law, there’s naivete about the law. How do these things usually pop up?

Mary Simmons: Yeah, and I, I always use the example, you know, when you’re speeding, um, and you get pulled over, you know, ignorance is never a defense, right? To say, oh, I didn’t know the speed limit was only 25 and I was going 50. that’s not going to pass muster nor is if the Department of Labor comes in and does an audit.

Okay. And you say, oh, I had no idea there was a difference between exempt or non exempt. But beyond that, you know, the DOL does come and do audits and quite frequently, and they’re on the rise. Obviously, they were, you know, their auditors were. You know, working from home during COVID. Um, but the other thing that happens very often, Mike, is employees start talking to their friends and their friends are saying, wow, you know, my check this week was so big, you know, I’m treating when we go out for drinks, um, and when the other employee, the other friend who is employed someplace else says, what do you mean your check was bigger this week?

And they say, Oh, I got a huge overtime check because I worked so many overtime hours. And the friend says, well, wait a minute. I worked a lot of overtime hours and that. Never, I don’t get overtime. Um, that is very often what happens, right? Your employees very often can be more educated, um, than, than the employer may be, or a small business owner may be.

And that’s why anybody listening, you’re 1 step ahead because you are looking at this and you’re. Right. Informing yourself about it, your next step, of course, is to consult with a professional. But very often what happens is the employee will go forward to the Department of Labor and make a claim that they’ve been misclassified.

That probably is what happens most often. The rest of the time it’s DOL actually just door to door knocking on businesses and saying we’re coming in to do an audit.

Mike Vannoy: Yeah. I mean, I would really encourage employers to think about this. We talk to business owners every day. That’s like, well, I’ve never been audited. I don’t think I’m breaking the law. It’s fine. So they don’t feel the sense of urgency to do anything.

And we hear this a lot, Mary. It’s uh, you know, we’re like a family here. My employees aren’t going to sue me. if I’m wrong, they’re going to, they’re going to forgive me. I mean, we’ll work it out there. And maybe those aren’t the exact words that are expressed, but it’s kind of understood. Well, that’s fine.

Maybe you have inappropriately classified somebody that’s exempt. You’re not paying them overtime. Um, or they are properly classified, but they take the occasional email from home. They take the occasional weekend call about a troubled client, and it’s only a minute here, five minutes there. So they think it’s no big deal, get swept under the rug.

Well, maybe, maybe three years ago when that person’s compensation filled the tank of gas, paid the doctor bills, and they were able to feed their kids, it wasn’t an issue, maybe they didn’t love it, but they, it was fine. They could, they could live with it. You know, given what’s happened with inflation in this last couple of years.

That same person who might really like you as an employer, like the company that they’re working for, they’re literally struggling to make ends meet. And all of a sudden that same call they get, or that email they get on the weekend about a difficult client’s like, they know darn well that it should be compensated for that.

And all it takes is talking to a spouse, talking to somebody at a dinner party about that. Oh, I’ll take that case for free. And now the DOL is in, and you’re not going to deal with that person. Making up for the last paycheck. You’re going to deal with a DOL audit that is going to look at every single one of your payroll records going back years, and you could be paying.

I mean, it’s, it’s, it’s, it’s very common to get into hundreds, hundreds of thousands of dollars in retro pay. And by God, if you don’t have really, really great documentation, um, they’re going to take the employee’s word for it, right?

Mary Simmons: Right, 100%. And I, listen, we, we do have a lot of family owned businesses or businesses that have been around for years and years and years. And it feels like a family, even if it’s not just because they have, you know, a low turnover rate and people have there for years. And I would say, you know I think to those employers that I’m sure you want to treat those employees properly, right?

If you feel like, you know, it’s a family, continue that, that family atmosphere by educating yourself on the classification, should, um, those employees be exempt or non exempt. Do they pass that, that duties test just so that you can, um, you know, Do right by them and continue the positive culture that I’m sure the employer has.

Right? So education is probably the most important thing that that I would say to employers, you know, to make sure that they have the. Best culture, but also to protect themselves against these very, very costly fines and back pay.

Mike Vannoy: Mary, what’s the best thing? So let’s, let’s, let’s wrap this. What, what, what, what, what is your advice? What’s your guidance to employers to get ahead of this, to make sure that they are in fact compliant and when they have new employees coming in, that they’re compliant in these offers.

Mary Simmons: I think the 1st thing that I want them to start with is up to date, very specific, uh, job. Descriptions, right? So your job description is what you would take into a court of law to defend yourself from making that classification. Remember the duties test. Okay? So the responsibilities that the exempt. And the non exempt employee have is what’s going to drive the classification and defend it.

So it has to be very prescriptive. It has to be clear. I would include a physical response, you know, responsibilities, you know, what do they have to do? Right, if it’s a manager, how many people they normally manage and you can give a range and what those management responsibilities include. So, number 1, job descriptions that are up to date and very, very, very specific.

My, of course, advice is going to be that a professional Looks at it and assists you with it. The second thing is to do an FLSA audit. So what does that mean? You’re gonna do your payroll run, you’re gonna look at your exempt and your non-exempt employees and how much money they are making. Right? And is the exempt employee being paid salary?

The non-exempt being paid hourly? And, and again, there are some nuances there. Um. But, you know, if you have a lot of exempt employees that are maybe below that 684, which is enforceable right now, you know, you need to increase it. Um, if they truly are exempt, if not, they’re not exempt and, and you just got to meet the minimum wage their hourly rate.

So. Do those 2 things. That should be done. That’s something we do with employers every single year. So, even if this regulation wasn’t being increased in April, Mike, that would be my advice that you do every single year.

Mike Vannoy: All right, very good. Mary, we could go on for a long time, but I think we covered the basics here. Next time you and I get together, let’s talk about the specific duties tests for non exempt in all those categories. But until then, thank you so much.

Mary Simmons: Thank you, Mike.

Mike Vannoy: And thanks to everybody else for joining us today. Until next week, if you liked today’s podcast, if you got value, if you think a friend might have value, I invite you to share, comment, like, and consume this content on the platform of your choice.

Until next week.

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