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Commentary: A few dollars on front end could ‘exempt’ you from a massive loss

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One of the biggest workforce mistakes I consistently see in my practice is improperly paying employees. Whether this comes in the form of not properly calculating or paying overtime or improperly classifying someone as salaried and thus not paying overtime, these mistakes can be costly to employers.

I know you think it seems expensive on the front end to consult an attorney regarding how to get this right, but I can assure you the cost when you get it wrong is far greater.

The minimum salary requirement for exempt employees increased from $488 to $684 per week Jan. 1, 2020, and now is a good time to remind employers of how to understand when you are legally justified in not paying overtime to a salaried employee.

It is a misnomer that a salaried employee is automatically exempt from overtime.

While you can pay a salary to any category of employee, provided that the salary works out to at least minimum wage ($7.25/hour) for every hour worked, you still are required to track that employee’s hours and pay time-and-a-half for every hour over 40 in any one work week.

If the employee is exempt, then you do not need to pay time-and-a-half after 40 hours in a week.

In order to be considered exempt, you have to look at the following:

1. Does the employee make a salary of at least $684 per week, every week?;

2. Is the employee engaged in a role that the Department of Labor classifies as exempt?:

• Executive

• Administrative

• Professional

• Computer

• Outside sales

The most common categories that trip up employers are executive and administrative.

An executive is most commonly the person who manages the business or a division of the business. That person must regularly direct the work of at least two other employees and have the right to hire and fire, or at least provide input that is given great weight with regard to hiring and firing.

An administrative employee is one whose primary duty is the performance of office or non-manual work that is directly related to either the management or general business of the company and the employee’s primary job duties involve the exercise of discretion and independent judgment concerning matters significant to the business. It is this last part of the test for administrative employees that most often trips up employers and results in a finding that the employee is not exempt.

This, unfortunately, can be a highly fact-driven inquiry.

You could have one employee who performs the duties of a front desk supervisor in a medical office, while an employee with the same title at the insurance office down the road may have slightly different job duties that result in that employee not being exempt.

It is at this point in the analysis that it is often most cost effective to engage an attorney to assist you in determining if the employee is truly exempt from overtime.

While you are considering whether to engage an attorney to spend a few hours assisting you in making this determination, consider that if you get this wrong, the consequences can be significant.

If you do not pay the employee overtime when you should, you are subject to a DOL audit and/or a lawsuit from that employee. In either situation, you are then going to engage the services of an attorney and the time that attorney spends helping you through the audit or lawsuit will quickly amount to many times what you would have spent on the front end getting the advice to get it right.

Additionally, if you did get it wrong, you will have to pay the employee for 2-3 years of back pay for overtime, which automatically doubles if they prevail in a lawsuit. If that were not enough, you are also going to be on the hook for the attorney’s fees that your former employee incurred in trying to get paid correctly.

The safest course of action is always to assume that your employees are owed overtime, and track and pay overtime. However, there are certain jobs that are legally exempt from overtime and you should not be afraid to classify someone as exempt; just make sure you get the right legal advice before you take that step.

• The Texas Workforce Commission offers helpful guidance on its website specifically for employers: https://bit.ly/2uNLaph

• The Department of Labor, the federal agency charged with enforcing wage and hour laws, publishes a myriad of helpful advice: www.dol.gov/agencies/whd

Caroline Harrison is managing partner of Pham Harrison, LLP. She is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization, representing employers in disputes with former employees. Her practice focuses on employment litigation and counseling. She can be reached at charrison@phamharrison.com

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