Hourly or Exempt Employees? A $36 Million Verdict for Misclassifying

For small business owners who wear many hats in the course of a single day, playing HR specialist can be among the most challenging of those roles.  And if this week's U.S. Supreme Court nod to let stand a $35.6 million verdict against Family Dollar Stores for unpaid overtime pay to store managers is any indication, it can prove to be an employer's most critical responsibilities as well.

One major source of confusion, and the basis for the Family Dollars Stores suit, is whether to classify workers as exempt or non-exempt (hourly).  In the case of Family Dollar Stores, store managers claimed violation of the Fair Labor Standards Act by classification of managers as exempt employees, not eligible for overtime pay.  However, a jury found that the plaintiffs should have been classified as hourly workers and thus should have been receiving overtime pay.  Though the U.S. Supreme Court reviewed the facts of the case, in the end they decided against hearing an appeal on the matter, thus solidifying the verdict amount and judgment against the defendant store.

The critical question for small businesses then becomes, are you correctly classifying employees according to the Fair Labor Standards Act (FLSA)?

General characteristics of exempt employees (do not receive overtime):  exercise independent discretion, hold a supervisory role, make high-level decisions, are paid on a salary basis (of $455 per week or more).

And here is more from the U.S. Department of Labor:

The following are examples of employees exempt from both the minimum wage and overtime pay requirements:

• Executive, administrative, and professional employees (including teachers and academic administrative personnel in elementary and secondary schools), outside sales employees, and certain skilled computer professionals (as defined in the Department of Labor's regulations); 
• Employees of certain seasonal amusement or recreational establishments;
• Employees of certain small newspapers and switchboard operators of small telephone companies;
• Seamen employed on foreign vessels;
• Employees engaged in fishing operations;
• Employees engaged in newspaper delivery;
• Farm workers employed on small farms (i.e., those that used less than 500 "man‑days" of farm labor in any calendar quarter of the preceding calendar year); and
• Casual babysitters and persons employed as companions to the elderly or infirm.

So before you flip a coin in deciding whether to classify employees as exempt or non-exempt for overtime pay, take a look at available resources or contact your local Wage and Hour office to determine whether your classifications are in line with the FLSA. 

Related Resources:

• Supreme Court lets stand $36 million Family Dollar ruling (Reuters)
• Minimum Wage and Overtime Pay (U.S. Department of Labor)
• Fair Pay and Time Off FAQ (FindLaw)
• Independent Contractor vs Employee: More Contractor Hiring Makes the Distinction Crucial (FindLaw's Free Enterprise)