Misclassification as an Exempt/Salaried Employee: What it Means to You

Wages and the Law
Starting early in the new millennium, around 2003, article after article appeared in business journals telling businesses to brace themselves. These articles warned employers that if they have been misclassifying employees, and not giving them all the pay they have earned, they should expect wage and hour lawsuits.  These articles, which appeared in high profile business journals such as the Wall Street Journal and Kiplinger’s, proved to be prophetic. Since 2003, wage and hour collective actions have exceeded employment discrimination class action lawsuits. One of the more common violations of wage and hour law is employers classifying an employee as “exempt” when in fact they are not. Exempt employees, as the name suggests, are not subject to certain wage and hour laws. When a salaried employee is misclassified as exempt, they are often unaware that they may be entitled to overtime pay.  Many time, the misclassification by the employer is a method of saving a bundle in overtime and “off the clock” pay.  While most states have a wage and hour law on the books, the federal law applied across the nation is known as the Fair Labor Standards Act (FLSA). Since the most visible impact of the FLSA has been on overtime, it is sometimes referred to as the “overtime law”.  Besides overtime and off the clock work, areas covered by the FLSA are minimum wage, child labor, and equal pay.
Excemptions to the FLSA
As discussed, some jobs are exempt from the FLSA.  Employees who legitimately fall into these exempt jobs are not entitled to minimum wage or overtime as long as the requirements for these exemptions are met.  Examples of jobs excluded from overtime rules are movie theater employees, agriculture employees, and certain commissioned retail sales positions.
There are at least three major exemptions to the overtime law under the FLSA, the Executive/Management, Professional and Administrative Exemptions. Traditionally, the positions falling into these categories are classified as exempt, salaried positions.  However, often they are not.  The exemption that creates the most legal controversy is the Executive/Management Exemption.  Many employers assume that if they classify an employee as management and that employee is salaried at a minimum of $23,600 per year, that employee is exempt. This is a misconception. In addition to the employee merely being classified as management, the employer has to demonstrate the employee is truly working in management and actually has authority and supervises at least two individuals. In fact, an employee is subject to a duties test to determine whether they fit into the exemption. This test involves meeting objective standards to determine if that employee is truly part of management and is not being passed off as management to avoid overtime pay and other FLSA requirements. If the test finds that an employee classified as management has primary duties not involving management, there has been a misclassification as a salary employee and that employee is not exempt from being governed by the FLSA. As such, such an employee would be entitled to be paid for any hours of worked performed over 40 in a work week at the rate of time and half.  Under the FLSA, the employee is also entitled to liquidated damages equaling the amount of overtime pay withheld from the employee, as well as interest and attorney’s fees.
If you think you have been misclassified or are owed overtime pay or minimum wage, you can contact the U.S. Department of Labor, Wage and Hour Division or Valli Kane & Vagnini, LLP to learn what your rights are.