Are You Misclassifying Employees?

The Supreme Court recently agreed to hear a case that could have a big impact on the Fair Labor Standards Act (FLSA) and the classification of employees as exempt versus non-exempt. The case of Hewitt v. Helix Energy Sols. Grp., Inc. involves a highly compensated oil rig worker who was paid a weekly “salary” and upon his termination sued Helix for unpaid overtime on the basis that he was not paid an annual salary and therefore was not an exempt employee. The outcome of this case could impact employers who pay a daily or weekly “salary” as well as those who pay salaried employees on an hourly basis.

In the past couple of years, we’ve seen a large number of FLSA cases arise, costing employers millions. Below are just a few recent headlines: Services and its Contractor Fined $6.4 Million (March 2021)

Court Approves $8.5 Million Settlement for Juicers in Misclassification Case Against Lime (July 2021)

Holland Acquisition Inc Pays $42.3 Million in Misclassification Case (October 2021)

DoorDash Agrees to a $100 Million Settlement (November 2021) 

Last month I talked about misclassifying employees as Independent Contractors. This month I want to talk about misclassifying employees as exempt. 

I’ve recently been working with a couple of clients on classification projects and in each of those projects I’ve come across employees who were misclassified. In some cases, it was an easy find for me. But in others, classifying employees is not an easy determination to make. So how can employers ensure that they are classifying employees correctly? 

The FLSA has very detailed guidelines on what qualifies an employee to be classified as exempt for the purposes of overtime pay. The first, and easiest, determination is pay – if any employee makes less than $684 per week ($35,568 annually) they MUST be paid as a non-exempt employee eligible for overtime wages. 

If they meet the salary requirement, the next step is to determine which FLSA exemption test, or tests, apply to that position. A position can potentially qualify under more than one exemption test. The exemption tests are:

  • Executive
  • Administrative
  • Professional/Creative
  • Computer Professional
  • Outside Sales

Once you determine which test, or tests, apply to the position, you will need to do an in-depth analysis of that position using the exemption test to determine if a position meets the requirements to be exempt. 

As I mentioned above, some positions are relatively easy to assess, but others are much harder. A great example of this is Healthcare Case Managers. By evaluating the position of Case Manager against the FLSA exemption tests that apply, many evaluate the position to be exempt. However, the Department of Labor issued an Opinion Letter in 2005 in which it determined that Case Managers did not meet the qualifications to be exempt employees under the FLSA. The DOL has a searchable database on all Administrative and Non-Administrative Opinion Letters regarding FLSA which is a great tool to use if you’re unsure whether a position qualifies as exempt. 

A great way to ensure that your employees are classified correctly is to ensure that you have updated and accurate job descriptions for each position within your organization and to review the job descriptions at least every 2-3 years. 

Lorrie Coffey

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