The $20.9 Million Mistake Your Company Can Do Without

What’s the big deal about proper classification of employees (exempt versus non-exempt, employee versus independent contractor)? As long as your company is paying them, you’re good, right? Does it really matter how they’re classified on paper?

To be blunt – YES … it matters. It matters a lot. Not paying close attention to how you classify your staff under FLSA (Fair Labor Standards Act) regulations can land you in legal hot water if the employee (or even the government) files a claim later for improperly paid wages or compensation. The costs of these claims can be huge in terms of money, time, bad publicity, lost business and more. Earlier this year, Rite Aid paid out $20.9 million in a Class Action Lawsuit brought against them for FLSA wage and hour violations due to misclassification of employees.

Could your business afford that kind of mistake? Probably not. That’s why it’s important to pay attention to FLSA guidelines so you don’t end up in debt—or out of business altogether.

How do you make sure your employees are correctly categorized under FLSA guidelines? There are exceptions, but for many employers, determining whether a worker is exempt or nonexempt largely depends on what kind of work the employee does and how much the employee is paid.

Job duties that are EXEMPT EXECUTIVE:

• Regularly supervises two or more other employees
• Has management as the primary duty of the position
• Has some genuine input into the job status of other employees (such as hiring, firing, promotions or assignments)

Job duties that are EXEMPT ADMINISTRATIVE:

• Office or non-manual work
• Directly related to management or general business operations of the employer/employer's customers
• Involves the exercise of independent judgment and discretion about matters of significance

Job duties that are EXEMPT PROFESSIONAL:

• Performs original and creative work or work requiring advanced knowledge normally acquired through a prolonged course of specialized academic study.

Generally, if employees do not fall into one of the categories listed above and they are not an independent contractor, they are considered a NON-EXEMPT (Hourly) employee. Non-exempt employees must receive overtime pay at the rate of one and a half times their regular rate of pay for each hour worked above 40 regular hours in a work-week.