There are a number of things to consider when deciding what type of compensation, salary or hourly, is appropriate for an employee. There have been countless cases where businesses have misclassified employees as exempt from overtime pay only to find out that a terminated employee is due back overtime wages. Effective human resource management encompasses much more than many small business owners realize. In today’s increasingly litigious environment, it is imperative to be proactive and compliant.

While there are some industries such as the Railway Industry that are governed by an act other than the Fair Labor Standards Act (FLSA), most industries are subject to the rules established by the FLSA. When classifying employees it is important to look at how much they are paid, how they are paid, and what kind of work they do. The following is a list of considerations and questions to ask when deciding how to effectively implement your compensation schedule by properly classifying exempt (not eligible for overtime) and nonexempt (overtime eligible):


• A few select industries are always considered exempt such as agriculture and movie theatres

• With few exceptions, to be exempt an employee must be paid at least $23,600 per year ($455 per week)

• If paid over $100,000, almost always exempt

• Paid on Salary basis (i.e. Paid same amount regardless how many hours worked or guaranteed minimum)

• Perform exempt job duties

1. Regularly supervises two or more other employees

2. Has management as the primary duty of the position, and management is defined as one who performs the following tasks:

♣ interviewing, selecting and training employees

♣ setting rates of pay and hours of work

♣ maintaining production or sales records (beyond the merely clerical)

♣ appraising productivity; handling employee grievances or complaints, or disciplining employees

♣ determining work techniques

♣ planning the work

♣ apportioning work among employees

♣ determining the types of equipment to be used in performing work, or materials needed

♣ planning budgets for work

♣ monitoring work for legal or regulatory compliance

♣ providing for safety and security of the workplace

3. Has some genuine input into the job status of other employees (such as hiring, firing, promotions or assignments).

Many professions which require professional degrees such as doctors, lawyers, engineers, teachers, nurses (RNs but not LPNs), scientists and clergy are considered exempt; however, it is regularly found that employers within the professional services fields tend to wrongly classify all positions as exempt. The administrative exemption is reserved for those relatively high-level employees whose main job is to “keep the business running.” For example, according to to be considered exempt, a secretary, administrative assistant or office manager, no matter what the official title, must perform “office or non-manual work, which is directly related to management or general business operations of the employer or the employer’s customers, and a primary component of which involves the exercise of independent judgment and discretion about matters of significance.”

Most employees in the United States are nonexempt employees who need to be classified as such to avoid the possibility of future FLSA based litigation. The extremely dynamic political and legislative landscape of the past two decades has created much confusion and hidden liability for the small business owner who drives job growth and economic wellbeing throughout the United States. Implementing best practices and compliant pay structures is imperative in protecting the assets of the small business. Are you properly insuring your business against litigation? Ask an Axiom HRS team member here.