Employee pay involves some of the most important decisions that an employer must make. You need to attract good employees, retain them, and avoid unnecessary human resource problems. But you don't want to overpay or provide wages that aren't in line with the work provided in return.
As you decide the right pay structure for your business, one of the first decisions you'll need to make is whether to make a position exempt or nonexempt. What does this mean, and what difference does it make both to you and your workers? Here are a few answers.
What Is Exempt vs. Nonexempt Status?
The exempt status relates to whether or not an employee must be paid overtime according to state rules. Most employees in Florida, for instance, must be paid one and a half times their normal wage after 40 hours in a week - these are nonexempt employees.
However, if you have a position that regularly requires more than 40 hours to complete the tasks assigned, this overtime pay can add up quickly.
Exempt employees are not subject to the over-40 rule but instead are expected to be paid a salary simply to complete the job - whether the job requires 50 hours or 30 hours.
How Can You Decide?
The notion that you don't have to pay employees overtime is a dream come true for many overworked businesses. But before you get too excited, be aware that there are rules about who can be designated as an exempt employee.
First, exempt employees must be in one of three categories: executive, administrative, and professional. These assigned job duties determine if your employees fit the right category for an exemption.
Executive employees generally manage the business or a division of the business. Administrative employees are more than just clerks; they must also have the authority to exercise their own judgment and discretion on matters. Professional employees generally operate in a field that requires special learning or study and is technical in nature.
In addition to these duty limitations, you must also adhere to minimum salary requirements. Check with your state's guidelines on salaries since some states may impose additional regulations.
How Is Your Business Impacted?
Obviously, paying overtime when you don't have to is expensive. Since many of these administrative and professional functions take more time than other jobs, you can save your company a lot of money over time by researching their eligibility for exempt status.
Exempt employees also simplify the record-keeping requirements both for workers and employers. If your executive employee handles client dinners, a professional works on-call, or an administrator wants to work from home, exempt status makes things much easier on the payroll.
Incorrectly paid employees, on the other hand, could cost your business money if the error comes to the attention of your state labor board. You would likely have to repay back wages and payroll taxes as well as suffering a more complete audit of all your payroll practices.
What Should You Do Next?
To ensure that you avoid any potential legal questions or audits, be certain that your employees fall into the categories appropriate for each type. This can be complicated, as some of the rules may be vague. How do you define an administrative or managerial function in a small company? Can you reclassify a position? And is it more attractive to list a job as exempt or nonexempt?
Get help with questions like these by working with an experienced business attorney in your area. At Gary A. Isaacs, P.A, we understand Florida labor laws and can assist you in deciding the best way to pay all your employees so that your business flourishes and your employees are happier. Call for an appointment today.