Figuring out who should be classified as exempt or hourly is undoubtedly one of the hardest parts of an HR professional’s job. Get it wrong, and your organization may owe thousands in back pay and penalties. That’s why it’s crucial to do your research.
If you can show you acted in good faith when classifying employees, you’ll at least save the company from the standard penalty: double damages. And that can mean thousands of dollars.
You should also have a system in place to record the hours that all employees work—even those you are certain are exempt. If you don’t, and employees successfully challenge your classification, they’ll have a big advantage—and may convince the court they worked far more hours than they really did, costing you more big bucks.
Recent case: Irene Billingslea and several other women hired to sell homes in a new subdivision sued the developer for unpaid minimum wages and overtime pay. They claimed that Brayson Homes had misclassified them as exempt outside salespersons who could be paid strictly on a commission basis for the homes they sold.
Brayson Homes was wrong, the court ruled, and the women were due back wages. To make matters worse, Brayson hadn’t kept track of their hours, assuming they were exempt. The judge ordered the women and Brayson to come up with estimates of how many hours they worked, and will let a jury decide whom to believe if the numbers don’t match.
Brayson did dodge one bullet, though. Its CEO testified that he had classified the women as exempt after consulting an attorney, his accountant and an old U.S. Labor Department opinion letter from 1964, which supported his conclusion. Because he acted in good faith, even though he was wrong, he won’t have to pay double damages. (Billingslea, et al., v. Brayson Homes, No. 1:04-CV-00962, ND GA, 2007)