A Word to the Wise

Exempt status under the FLSA

On August 23, 2004, the U.S. Department of Labor changed the overtime provisions of the Fair Labor Standards Act. The new rules present some major changes in the way in which employers must distinguish between nonexempt employees (those who are subject to the minimum wage and overtime provisions of the Act) and exempt employees (those who are not).

Job titles do not determine exempt status. Neither does that fact that an employee is paid a salary rather than an hourly rate. For an exemption to apply, an employee must meet all requirements set by the regulations, most especially the duties test.

The consequences of misclassifying employees can be significant. Willful violators may be prosecuted criminally and fined as much as $10,000. A second conviction may result in imprisonment. Willful or repeated violators also are subject to civil money penalties of as much as $1,000 per violation, as well as liquidated damages equal to back pay owed.

An ounce of prevention, specifically an audit by a legal professional identifying and confirming the employment status of all employees claimed as “FLSA exempt,” can be worth a pound of cure by the DOL.