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The most common mistake: Misclassifying employees

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Misclassifying employees is the most common mistake. Qualifying exempt employees are paid salaries but not overtime pay. Nonexempt employees are usually paid hourly rates. The company owes you money if you are misclassified as an exempt employee.

Exempt standards

Federal employment law is clear on exempt standards. Under the Fair Labor Standards Act (FLSA), one is considered as an exempt employee if:


  • The salary is $455 per week or $23,660 per year. In some states the wage may be higher. In California the minimum exempt salary is $33,280.
  • The employee’s primary duty is managing the enterprise.
  • The employee regularly and customarily directs the work of two or more other employees.
  • The employee is authorized to hire or fire other employees.
One has to meet all the four criteria if one has to be exempted from overtime. VPs, directors and C-level staff members are exempt employees.

Nonexempt exceptions

Before seeking overtime, make sure you don’t fall in the category of nonexempt exception. Federal law says that even if you don’t meet all of the criteria mentioned above, but belong to any of the following general categories you will not be entitled to overtime:
  • Administrative employees: If you exercise independent judgment and discretion performing non-manual work that is directly related to business operations. Typical jobs: officer manager, insurance agent, human resource professional and marketing personnel.
  • Professional: If you have attained advanced knowledge in a field of science through prolonged course of specialized instruction from an institution such as college, law school or medical school. Typical occupations: doctor, lawyer, dentist, professor and accountant.
  • Outside sales: If your duties involve making sales away from the employer’s office. There is no salary qualification for this exemption.
While determining who should be an exempt employee, the law takes into account the job duties not the titles.

It is common to come across managers whose duties don’t involve managing people, outside sales persons who spend their time at headquarters and administrative assistants working with CEOs but don’t have any autonomy. These employees should get overtime.

Rectifying the mistake

If you have been classified as exempt when you are nonexempt, you can sue your employer in your local court and get the unpaid overtime. On winning the case, you get $2 for every $1 the employer didn’t pay you.

Before knock the doors of a court, better point out the mistake to your employer and explain how you are misclassified. At least bigger companies know the rules are very clear and remedy the situation immediately.

Are you worrying about retaliation? Don’t worry as no employee can be fired for pointing out this type of mistake. Still it is better to settle the matter with your boss to avoid any hard feelings. Your case becomes strong if you find some of your colleagues are also misclassified as exempt. If the boss retaliates against all of you, you are protected by both the National Labor Relations Act and FLSA for engaging in group activity.

If you are still confused, learn about the FLSA on Web site of the Department of Labor.
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