The Fair Labor Standards Act () brought the 40-hour workweek to Depression-era America. The idea seemed simple: Force employers to pay workers 1½ times their regular hourly wage for every hour over 40 they worked in a week. If the government made it too expensive to work employees long hours, then employers would hire more people and reduce unemployment.
Later, the FLSA became the vehicle to set a national minimum wage. Because wage conditions vary across the country, each state has passed its equivalent of the FLSA, some with different minimum wages, mandatory breaks and other rules.
Certain executive, administrative and professional employees are exempt from the FLSA, meaning they aren’t eligible for overtime pay. But the $64,000 question is this: Which employees qualify for the ?
That dilemma has triggered some huge FLSA lawsuits, and the three-year-old “clarification” regulations have only fueled the lawsuit fire. (Adding to the confusion, some states set their own exempt/nonexempt classification rules.)
WHAT’S NEW: The U.S. Labor Department revamped the in 2004 to help employers and employees understand the rules better. But, so far, the HR world has only seen more lawsuits, not less.
That includes some huge class-action awards and settlements over misclassification mistakes by Merrill Lynch, RadioShack and Starbucks. Private lawsuits filed by multiple employees have jumped 77 percent over the past five years, according to the National Employment Lawyers Association.
Just recently, Siebel Systems agreed to pay $27 million to settle an overtime class-action suit by hundreds of computer workers who claimed they were wrongly classified as exempt software engineers, but whose actual job duties didn’t rise above the level required for exempt status.
HOW TO COMPLY: The key to avoiding is to regularly audit your work force classifications and job descriptions to ensure that you correctly classify employees as exempt.
Under the federal FLSA , employees earning less than $23,660 annually (or $455 a week) now are automatically deemed nonexempt, meaning they’re eligible for overtime pay. Employees earning more than $100,000 a year are, in most cases, ineligible for overtime.
When employees earn between $23,660 and $100,000 a year, you must look at their actual job duties to see if they fit under one of the FLSA exemptions. Generally, are salaried and receive the same amount of pay each pay period regardless of their hours or quality of work. The classification categories:
Executive exemption: Employee must manage at least two employees and have significant say in hiring/firing decisions.
Administrative exemption: Employee’s main job is office or nonmanual labor related to or operations, plus the person must exercise “discretion and independent judgment” in the job.
Professional exemption: Employee must perform nonmanual work requiring advanced knowledge or invention, imagination or talent in a recognized field.
Exemption categories also apply to outside sales reps and computer employees. Obviously, the exemption rules are far more complex than we’ve stated here.
Beyond proper classification, simply keeping accurate records goes a long way to compliance.
Also, avoid improper deductions from exempt employees’ pay. That can jeopardize the person’s exempt status.
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