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
- The differences between the government-identified job categories and which jobs fit into each
- 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
- 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
Fourth, analyze each employee and their position against the rules required in their job type to determine
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.
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.
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.