Properly classifying your employees can prevent potential lawsuits along with fines and penalties for violating state laws. If you are unsure about an employe classification or have trouble interpreting confusing state laws, consult a labor or employment attorney.
Regular Employee or Independent Contractor?
Even if you consider someone you hired to do a particular job as an independent contractor, you may have misclassified this individual. Most laws focus on what control you have over the employee and how the worker performs the task.
There are some factors to consider when classifying this particular employee:
- How is the worker paid?
- Who is providing the tools or supplies used by the employee?
- Is the worker being reimbursed for expenses?
- Are you providing typical employee benefits like insurance, vacation, a pension plan?
- Is the work being performed an essential aspect of the business?
Also, does your employee have the ability to work for another employer or do the job conditions prohibit it? If so, the individual appears more like an employee and not an independent contractor. Further, be aware that if you change the employee’s job duties, you may also be changing the individual’s status.
Exempt vs. Nonexempt
Whether to classify an employee as exempt or nonexempt depends on the rules set forth by the Fair Labor Standards Act (FSLA). Being exempt means that your employee is not entitled to overtime pay or time off for meals and rest breaks.
Nonexempt employees can be salaried, work on commission or be paid hourly. Exempt workers must be paid a minimum of $23,600 per year based on salary, perform exempt duties and meet other tests as explained herein.
Exempt status is based on your employee’s job duties and not whether he or she is paid hourly or not. There are three categories for most positions:
An executive is exempt if the employee regularly supervises at least two other employees, is primarily a manager and whose input into hiring, firing or assignments is considered.
Exempt administrative duties includes office work that is directly related to management or to the overall business operations and where the exercise of independent judgment and discretion about significant matters is a primary component. These duties apply to those who provide support to other employees and are not production employees such as salespeople. A buyer for a department store is an example of an exempt worker. Clerical work is not exempt even if administrative since most tasks are not high level enough. A title does not confer exempt or nonexempt status.
Jobs that involve intellectual tasks such as by lawyers, doctors, teachers or clergy are exempt. Accountants, engineers, scientists and those with advanced degrees are included in this classification as exempt employees.
Rights of Nonexempt Employees
Exempt employees have few rights regarding overtime or rest breaks. Nonexempt workers are entitled to time and one-half of their regular pay rate for each hour over the 40-hour work week.
As an employer, you must follow federal and state laws regarding meal breaks and time off. For instance, you generally cannot give nonexempt workers time off instead of paying overtime.
Consult an employment or labor attorney for more information regarding this complex and often confusing aspect of labor law.