Can I Just Make My Employees Salary Exempt? Spoiler: Probably Not (Thanks, FLSA)
- thomaswhite2315
- Nov 28, 2024
- 3 min read
The buzz around potential changes to overtime taxes—like Donald Trump’s recent rhetoric about eliminating them—has sparked questions from employers: “If overtime becomes tax-free, can I just make my hourly workers salaried and dodge overtime altogether?”
The short answer? Nope. Not unless you want the Department of Labor knocking on your door. Let’s dive into why FLSA rules make this harder than it sounds, with a sprinkle of humor to ease the legal jargon.
What Does “Salary Exempt” Actually Mean?
Under the Fair Labor Standards Act (FLSA), employees are classified into two primary categories:
Exempt: Not eligible for overtime pay.
Non-Exempt: Eligible for overtime pay (time-and-a-half, baby!).
To classify an employee as salary exempt, you have to meet strict criteria:
Pay Structure: The employee must be paid a fixed salary, not an hourly rate.
Minimum Salary Threshold: That salary must be at least $684 per week (or $35,568 per year).
Job Duties: The employee’s job must fall into one of the FLSA’s exempt categories, like executive, professional, administrative, or creative roles.
You can’t just slap a “salary” label on an employee and call it a day. If their role doesn’t meet the duties test, they’re still non-exempt, even if they earn above the salary threshold.
Why You Can’t Reclassify Most Hourly Workers
Let’s say you’re tempted to make all your hourly employees salaried to avoid overtime. Before you jump into that pitfall, here’s why it won’t work:
Job Duties Are Non-Negotiable: The FLSA requires that exempt roles involve significant decision-making authority, specialized expertise, or high-level responsibilities. If your employees are performing routine tasks (e.g., stocking shelves, operating machinery, or serving customers), they don’t meet the duties test.
Pay Alone Isn’t Enough: Even if you bump their salary above the minimum threshold, their job duties still have to align with the FLSA’s exempt categories.
In short, if their role doesn’t qualify as exempt, you’re required by law to pay overtime—no matter how you structure their pay.
The FLSA Is Here to Protect Workers (And You!)
The FLSA exists to ensure fair treatment for workers, and it’s not a set of rules you can sidestep. Misclassifying employees to avoid overtime is a risky game that could result in fines, lawsuits, and hefty back pay settlements. The Department of Labor takes these violations seriously, and they’re not known for their sense of humor.
The Risks of Misclassification
If you misclassify employees, you’re opening yourself up to:
Back Pay Obligations: You could owe employees overtime for every hour they worked over 40 in a week, going back as far as two to three years.
Penalties and Fines: The DOL loves to remind employers that compliance isn’t optional.
Damaged Reputation: Labor law violations don’t look great on Yelp reviews.
How to Stay on the Right Side of the FLSA
If the rules sound complicated, that’s because they are. But that’s no excuse to take shortcuts. Here’s how to ensure you’re classifying your employees correctly:
Audit Your Workforce: Review your employees’ job duties and pay structures to ensure compliance.
Understand the Criteria: Know the FLSA’s exemption categories and salary thresholds like the back of your hand.
Document Everything: If an employee is classified as exempt, have clear documentation showing why they meet the criteria.
Let’s Make Compliance Simple
FLSA compliance doesn’t have to be a headache. If you’re unsure about your employee classifications or worried about changes to overtime laws, Koons & White is here to help. We’ll guide you through the complexities of the FLSA and set you up for success—so you can focus on running your business without the fear of a labor audit. Let’s talk!