Are You Classifying Your Employees Correctly?
Are You Classifying Your Employees Correctly?
Let’s be honest—this might not be your favorite HR topic, but employee classification is one of the most critical (and commonly misunderstood) compliance issues facing employers today.
If you’re asking yourself, “Am I even sure what exempt vs. non-exempt means?” - you’re not alone.
I’ve spent nearly 20 years in HR and People Operations debating this very issue with clients and business leaders across industries. It’s complicated but it doesn’t have to be confusing.
Exempt vs. Non-Exempt: What's the Difference?
Let’s get clear:
Exempt Employees are exempt from overtime pay requirements under the Fair Labor Standards Act (FLSA).
Non-Exempt Employees are entitled to minimum wage and overtime pay for hours worked beyond 40 per week.
And here’s the kicker: This classification isn’t based on your opinion—it’s based on Department of Labor (DOL) criteria.
The 3-Part Test to Determine Exemption Status
To legally classify someone as exempt, the following three-prong test must be met:
Salary Level:
The employee must earn at least $684 per week (or $35,568 per year).Salary Basis:
The employee must be paid a fixed salary, not based on hours worked.Duties Test:
The role must involve work in specific categories like administrative, executive, professional, computer, or outside sales.
Ask yourself: Does this person make decisions that directly impact the business without oversight?
Why Misclassification Is a Big Deal
It might seem easier to label an employee as "salaried" and call it a day but misclassifying an employee can lead to:
DOL investigations
Back pay and unpaid overtime claims
Employee lawsuits
Costly penalties and fines
Damaged employee trust and morale
And if you do need to reclassify employees? Be prepared for confusion, resentment, or perceptions of demotion especially if an employee moves from exempt to non-exempt and has to start clocking in and out.
Proposed Changes Ahead: Salary Threshold May Rise
Heads up: A proposed rule could increase the salary threshold for exemption to $55,000/year a 55% jump. While it hasn’t passed yet, employers may only have a 60-day window to comply once finalized.
Now is the time to evaluate your team.
We Can Help.
Not sure whether your exempt vs. non-exempt classifications would hold up to a DOL review? The free HR Audit shows you where to start: saltandlightadvisors.com/hraudit
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