As an accountant, bookkeeper or business consultant you may be called upon to help a client configure their payroll and HR processes. In doing so there are numerous considerations you must take into mind including job descriptions, the work environment, the total number of personnel and how they are organized, the reporting structure, the organizational budget, labor laws, and whether certain personnel should be paid as hourly or salaried employees.
All of these considerations, and the recommendations you make, along with the decisions the business makes can have a significant impact upon their bottom line and legal standing when it comes to potential challenges regarding any wage & hour issues. That's because the decision to make certain positions 'salaried' rather than 'hourly' has strict definitions and legal criteria.
These distinctions also pose complexities when it comes to the issue of 'overtime' even as it relates to salaried personnel. I know what you are thinking... "you didn't think salaried personnel could earn overtime!" That's a misconception, because even salaried personnel can be 'non-exempt' under the provisions that govern overtime as we will discuss later in this feature.
While State 'Wage & Hour' Agencies can define Overtime more restrictively on a state-by-state basis than the federal government, it is well beyond the scope of this short article to outline all of those state provisions. We therefore will focus on how overtime is defined under just the federal guidelines known as the Fair Labor Standards Act (FLSA). 'Overtime is any time worked by non-exempt employees beyond a standard 40-hour work week.' Workers must be paid their regular rate plus 50 percent (aka: time and a half) for all overtime hours. It doesn't matter when overtime hours are earned during the work week, so long as they are hours worked in excess of forty.
It is true that the Fair Labor Standard Act exempts certain classes of personnel including executives, administrators, professionals, computer personnel, outside sales and others including highly-compensated employees. It is common for salaried employees to be considered as exempt simply because they have been selected to be paid on a salaried basis, however, that does not mean that they are automatically exempt. For example, there is a minimum (base) salary requirement for anyone to be considered exempt of $684 per week as of the current year, which means that a lot of salaried personnel may, in fact, be entitled to overtime simply on the basis of their base salary (compensation).
Let's look at some of the exemptions more closely:
Executives
- Must have primary job responsibilities for management of a business, sector, division or department within the organization.
- They must manage or supervise at least two other full-time personnel and have the authority to employ and terminate other personnel.
- They must also meet the minimum weekly pay requirements as discussed above.
Administrators
- Must have primary responsibility for non-manual labor office duties related to fundamental operations of a business, sector, division or department within the organization.
- Exercises independent judgment and discretion in the performance of their primary responsibilities.
- Typically manages or supervises one or more other personnel within the organization.
- They must also meet the minimum weekly pay requirements as discussed above.
Professionals
- Learned professionals typically have duties for performing advanced work of an intellectual nature that requires discretion and judgement. Specialized education is almost always required in order for these professionals to have developed the expertise that is necessary to perform these duties.
- Creative professionals typically perform work requiring originality, imagination, talent, invention or other creativity. They may have acquired their abilities through natural talents, specialized education or a combination or both.
Computer Personnel
- Typically positions like Programmers, Software Engineers and System Analysts are recognized as exempt.
- Personnel should be associated with computer consulting with other users, and/or involved in designing or developing computer programs or systems for use by others, or some combination thereof.
- But, a diverse number of other job duties may qualify an individual for exemption under this category. See the FLSA Fact Sheet.
So, determining who is, or who isn't eligible for overtime boils down to who is or who isn't exempt under FLSA (at a minimum) and not simply the issue of who is salaried vs. hourly. For more details be certain to check out the official U.S. Wage and Hour Fact Sheet on Exemption: Fact Sheet # 17A (PDF) here.