The federal minimum wage and requirement to pay overtime wages are provisions of the Fair Labor Standards Act (FLSA), designed to protect employees from exploitative work conditions.
The Act contains several other components, although minimum wage and overtime get a good deal of attention. The FLSA established guidelines for employers to categorize workers into exempt and non-exempt classifications using three tests. The tests are: salary level, salary basis, and job duties.
Non-exempt employees
Non-exempt employees generally get paid by the hour, with work hours that vary each week. To categorize a worker as non-exempt, the three tests apply as follows:
- Salary level: Workers can be paid for fewer than 40 hours per week but must be paid at least the federal minimum wage for each hour worked.
- Salary basis: Employees have no guaranteed minimum pay and could be salaried or hourly.
- Job duties: The job can require the worker to perform any job duties.
Non-exempt employees must receive at least 1.5 times their hourly wage for overtime hours. They also have more legal protections than those provided for exempt employees.
Exempt employees
These employees are exempt from overtime pay and other protections and rights extended to non-exempt employees. Exempt workers usually receive a salary rather than hourly pay. The three tests apply to exempt employees as follows:
- Salary level: Workers must be paid a minimum salary amount that equates to the federal minimum wage for 40 hours per week.
- Salary basis: The minimum pay must be guaranteed.
- Job duties: FLSA defines several exempt categories, which include executive, professional, administrative, outside sales, and highly compensated individuals.
Employees only fit the exempt categorization if they meet all three exempt test conditions.
Why classification matters
Every employer must classify its job roles into either exempt or non-exempt categories. Misclassifying employees can lead to severe financial penalties from the Department of Labor. Misclassified employees can also sue their employer for unpaid wages and interest.
Employers are required to classify workers as exempt or non-exempt. The FLSA provides protection to workers depending on which group they fall into. Companies that categorize employees incorrectly or violate the requirements for the given categorization can be penalized by the Department of Labor.