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Job Misclassifications Cost Employers Thousands

Why is the government focusing heavily on specific HR compliance areas for exacting huge fines? Because they know that most employers have regulatory violations including classifying a job as exempt instead of non-exempt which prevents employees in that job from being eligible for overtime pay. Workers in non-exempt jobs get overtime pay; exempt workers do not get overtime.

Seems simple, right? But the reality is that determining overtime eligibility is not simple. High-quality employers misclassify employees on a regular basis.

The Federal Department of Labor (DOL) estimates that nearly 70 percent of employers are not classifying jobs correctly, which is a violation of the federal Fair Labor Standards Act.

They are taking a serious stand on this issue. In 2010, the Federal DOL targeted $25 million for FLSA violation enforcement. California's Division of Labor Standards Enforcement (DLSE) is also aggressively pursuing noncompliant employers. Class-action lawsuits are increasing as plaintiff attorneys have noted that this very a lucrative area of regulatory violation.

Here are some issues that employers need to understand about classifying their employees correctly:

  • The differences between the government-identified job categories and which jobs fit into each category.
  • How to apply the classification tests for each job category correctly.
  • The difference between California and federal rules for white color exemptions.
  • How to properly classify managers and assistant managers within the executive exemption.
  • The difference between sales positions that are exempt and those that are non-exempt.
  • How California and federal rules differ on computer, IT and technology positions.
  • How tighter administrative exemption rules may impact your jobs.
  • Why you cannot simply pay someone a "salary" and rely on that to make the employee exempt from overtime.
  • How to communicate and document a misclassification once it is identified.

What can employers do?

First, make sure job descriptions accurately reflect the duties of each job and the scope of the services provided. A solid job description is the foundation of the classification process.
Second, obtain the pay levels for each employee to determine if they pass the Salary Basis Test. Third, determine if the employee performs duties within one of the five job types: Executive, Administrative, Professional/Creative, Computer Professional, or Outside Sales.

Executive - Employee whose primary duty is to manage the business or a recognized department/entity and who customarily directs the work of two or more employees. Also includes individuals who hire, fire or make recommendations that carry particular weight regarding employment status.

Administrative - Employee whose primary activities are performing office work or non-manual work on matters of significance relating to the management or business operations of the firm or its customers and which require the exercise of discretion and independent judgment. Examples: coordinator, administrator, analyst, accountant.

Professional/creative - Employee who primarily performs work requiring advanced knowledge/ education and which includes consistent exercise of discretion and independent judgment. The advanced knowledge must be in a field of science or learning acquired in a prolonged course of specialized intellectual instruction. Creative professionals perform work requiring invention, imagination, originality and/or talent in a field of artistic endeavor.

Computer professional - Employee who primarily performs work as a computer systems analyst, programmer, software engineer or similarly skilled work in the computer field performing a) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications; or b) design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specification; or c) design, documentation, testing, creation or modification of computer programs based on and related to user or system design specifications; or a combination of the duties described above, the performance of which requires the same level of skills.

Outside sales - Employee who performs sales work off the company's premises and whose primary duties include making sales or obtaining order or contracts for services or for the use of facilities for which the client or customer pays. This employee is customarily and regularly away from the company's place of business while performing such duties.
Fourth, analyze each employee and their position against the rules required in their job type to determine exempt status.

Employer Alert

Employers also need to be aware of a proposal that would require employers to perform a job analysis on each position that they believe is exempt from overtime pay. The rule is the proposal stage.
Proposed rule:
Right to Know under the FLSA (Department of Labor Regulation)

  • Current FLSA Requirement: There is no requirement under the FLSA that employers undergo a classification analysis to determine whether workers are exempt from FLSA coverage.

  • How the Rule would Change the FLSA Requirement: This rule, included in the Department of Labor's (DOL's) regulatory agenda in the spring of 2010, would require any business that claims workers to be exempt from FLSA coverage to perform a classification analysis and disclose that analysis to its workers. The rule would also require the employer to retain the analysis, in case the DOL wants to review it.

  • Why this is Important to Employers: Regardless of who performs this analysis, it is unlikely to be cheap, particularly for larger employers with many levels of employees. The rule could cause a spike in employment litigation.

  • Potential for Proposal to Become a Final Rule: Fairly likely. The notice of proposed rule making is slated for April, but the rule's form then (and its final form) is up in the air. A good strategy for employers is vocal participation in the rule making process.

For more information and who to contact to voice your opinion, follow the link below.

Employer Alerts

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