UPDATED 12/05/2024
Understanding the differences between an exempt and non-exempt employee is essential to your practice. New legislation evolves, and healthcare employers need to understand what rules take effect. At HR for Health, we want to position your company for success. That means making sure that your employees are properly categorized.
What is the Fair Labor Standards Act (FLSA)?
Passed in 1938, the FLSA is a federal law that ensures workers have enough protection against pay practices and work regulations that are unfair. The FLSA creates standards for the federal minimum wage, overtime pay, child labor regulations, and other labor standards to protect employees.
An example of protection against unfair practices includes preventing unequal pay, such as women receiving less pay than men. Being made to work unreasonable and excessive hours is also a violation of FLSA classification rules. Lack of pay for working overtime falls under FLSA violations. Unsafe working conditions are another example of the violation of FLSA rules.
Exempt vs. Non-Exempt Status
Employers need to follow federal regulations, but state laws often apply to employee exempt vs. non-exempt status. Employers must know and comply with both state and federal regulations. Being aware of state and federal exempt regulations is essential to your healthcare practice and is crucial for properly managing your employees.
FLSA regulations define employees into two categories: exempt and non-exempt. Correctly classifying your employees according to state and federal regulations can help you avoid compliance problems. Correct employee classification means you pay your employees fair wages, have consistent standards for leave, and pay at least the minimum wage according to federal, state, and local law.
Contact an HR software solution provider to coordinate exempt and non-exempt categories.
Exempt Employees
So, what does exempt mean? The determination of exempt vs. non-exempt status is determined by how much an employee earns, what their job duties are, and what their responsibilities are. Exempt employees are usually paid a salary that meets the minimum federal/state standards. The FLSA has qualifications for exempt employees under labor laws. One is that the employee must have a salary that meets the minimum federal threshold instead of working on an hourly basis. A second criterion is the employee must have a minimum FLSA salary. Currently, the minimum FLSA-exempt salary is at least $844 per week or $43,888 per year.
Another criterion relates to an employee’s roles and responsibilities with specific job duties. The job title is not important—the job duties performed are what matter. When an employee is exempt, their pay remains the same regardless of how many hours they work, even if they work less than an eight-hour day.
Exempt Job Categories
What is an exempt employee? Exempt status covers several job roles and responsibilities. Usually, these exempt statuses are administrative, executive, creative, sales, and highly compensated employees. The roles are:
Executive Exemption
Executives must manage a practice or a subdivision of a practice. They must supervise at least two employees and have the authority to hire, promote, advance, or change the status of other employees, including dismissing employees. The CEO of a hospital would be an exempt employee under FLSA regulations.
Administrative Exemption
Administrators must perform work related to business operations or management. Some administrative responsibilities include coordinating office activities and operations, performing non-manual work, and supervising administrative staff. A bookkeeper is an example of an administrator employee.
Professional Exemption
The professional exemption has two categories: learned professionals and creative professionals. Learned professionals perform work based on advanced knowledge. Creative professionals have job duties related to talent, imagination, or invention. For a healthcare practice, the category of learned professional applies to medical staff such as doctors or nurses.
Outside Sales Exemption
Outside sales employees obtain contracts or orders from clients or customers. They must consistently be away from an employer’s place of business to be exempt. Salespeople who earn commissions are also exempt. A medical device salesperson qualifies for exempt status.
Highly Compensated Employees
Office employees whose responsibilities include non-manual labor qualify for this exemption. To qualify, their exemption roles should be executive, administrative, or professional. A nurse administrator, for example, would qualify for exempt status.
Non-Exempt Workers
The FLSA usually bases non-exempt status on hourly employment. Employment such as dental assistants, front desk workers, hygienists, and scheduling coordinators are examples of non-exempt roles. Employees with these roles and responsibilities are entitled to overtime pay beyond the number of hours they work and federal minimum wages. Paramedics, ambulance personnel, and first responders are also in the non-exempt category.
Common Misclassifications and Their Consequences
Misclassifying employees as exempt or non-exempt is a common issue that can lead to serious compliance violations. Employers often misinterpret job responsibilities, salary thresholds, or exempt status criteria under the FLSA. These errors can result in employees being improperly denied overtime pay or other benefits. Understanding and correcting misclassifications is essential to avoiding legal and financial repercussions.
Common Examples of Misclassifications
A common misclassification occurs when employers categorize hourly employees as exempt simply because they receive a salary. Another frequent issue is classifying administrative staff as exempt without verifying their duties align with FLSA requirements. In healthcare, roles like dental assistants or hygienists are sometimes incorrectly labeled as exempt despite being non-exempt by law. Misclassification can also happen with sales staff, particularly if they do not meet the criteria for outside sales exemptions.
The Consequences of Misclassifying Employees
Misclassifying employees can result in significant consequences, including fines from the Department of Labor and state agencies. Employers may also be required to provide back pay for unpaid overtime and other benefits owed to misclassified employees. Lawsuits and legal fees can arise if employees file claims for wage and hour violations. Furthermore, misclassification can damage employee morale and trust, leading to higher turnover and reputational harm.
Industry-Specific Examples of Misclassification
In healthcare practices, roles like dental assistants and hygienists are almost always classified as non-exempt due to their hourly pay and job responsibilities. Similarly, administrative staff in medical offices, such as receptionists and billing coordinators, are typically non-exempt. However, physicians, nurse practitioners, and other advanced professionals generally qualify for exempt status under the learned professional exemption. Employers must carefully evaluate these roles to ensure proper classification.
Dental and veterinary practices also present unique challenges. Veterinarians and optometrists typically qualify as exempt professionals, while roles like veterinary technicians and optometric assistants are non-exempt. Front desk staff in these settings, such as schedulers or receptionists, often fall under the non-exempt classification as well. Tailoring classifications to each role’s responsibilities and salary is crucial to maintaining compliance.
How to Conduct an Internal Audit of Employees
- Review Job Descriptions: Compare job descriptions to actual duties performed by employees to ensure they meet exemption criteria. Make updates where discrepancies are found.
- Evaluate Salaries: Confirm that employees classified as exempt meet the FLSA minimum salary threshold. Adjust salaries if necessary to comply with federal or state regulations.
- Analyze Current Classifications: Identify all exempt and non-exempt employees and verify that their classifications are accurate under FLSA standards.
- Examine Overtime Practices: Ensure non-exempt employees are properly compensated for overtime hours worked. Document any gaps in compliance.
- Consult Federal and State Laws: Review both federal FLSA regulations and applicable state laws for employee classification requirements. State laws may have stricter criteria.
- Document Findings: Create a detailed report of classification errors, non-compliance issues, and necessary corrective actions. Maintain this documentation for future audits.
- Implement Changes: Reclassify employees as necessary and update payroll systems to reflect accurate classifications. Communicate changes clearly to staff to avoid confusion.
Why You Need To Consult With HR and Legal Experts
HR and legal experts provide critical guidance in navigating complex employee classification rules. They can help identify potential misclassifications and ensure your audit aligns with FLSA and state regulations. Additionally, these experts are familiar with legal precedents and can help address gray areas in classification. Their input minimizes risk and ensures compliance with federal and state labor laws.
Consulting with experts also protects your practice in case of future disputes or audits. They can provide tailored advice specific to your industry, such as how to classify roles in healthcare or dental practices. By involving HR and legal professionals, you demonstrate a proactive approach to compliance, which can build employee trust and reduce the likelihood of costly mistakes. Partnering with professionals ensures your classification processes are thorough and legally sound.
State Exemptions from Overtime
Some states have their own salary and responsibilities criteria for exempt vs. non-exempt employees. As of January 1, 2022, changes in five states took effect for the minimum salary requirements for overtime exemption. The states are:
California
Administrative, professional, and executive employees must meet salary and responsibilities qualifications for exemptions in California. These individuals must be paid at least twice the state minimum hourly wage when based on a 40-hour week.
For exemption, employers with 26 or more employees must pay a weekly salary of at least $1,200 per week to qualify for the exemption
Colorado
According to the Colorado Overtime & Minimum Pay Standards Order, the minimum salary to qualify for executive/supervisor, administrative, and professional exemptions increases to $865.38 per week (hourly rate of $28.92). For weekly salaries, employers with fewer than 26 employees must pay at least $1,120.Colorado.
However, an exempt employee’s salary should also be enough to satisfy the minimum wage for all workweek hours. FLSA regulations define a workweek as a consecutive seven-day period of time. Employers should consult legal counsel about how this rule may affect their practice.
Maine
For exemption statutes, administrative, professional, and executive employees in Maine should receive a salary that exceeds 3000 times the state minimum wage. Exemption salary from overtime law is $735.59 per week for administrative, professional, and executive employees. However, the salary threshold for exempt employees in 2024 is $816.35 per week, or $42,450.20 annually.
New York and New York City
In New York, executive and administrative employees must have a minimum salary of 75 times the state minimum wage. The minimum wage differs by state region. For example, on December 31, 2021, the minimum wage increased in every state region except New York City. The minimum salary required for executive and administrative exemptions increased in Nassau, Suffolk, and Westchester Counties to $1,200 per week.
For the remainder of the state, the rate will be, except for New York City, a proposed $1,124.20 per week. Professional exemptions are allowed under state law. For professional exemptions, there are tests for responsibilities, and job duties must meet specific criteria, but no minimum salary requirement for state law.
However, federal law establishes a minimum salary level of $684 per week for professional exemptions. Employers classifying professional exemptions should ensure employees meet federal and state exemption eligibility. While this may seem confusing, contacting an HR software solution provider can be useful to keep these disparate exemptions organized.
Washington State
In Washington state, employees must earn a salary of at least 1.75 times the minimum wage for a 40-hour workweek. The state’s minimum wage increased on January 1, 2022. The minimum salary required for executive, administrative, and professional overtime exemptions increased to $1,014.30 per week (hourly rate of $50.72). Employers who hire computer professionals by the hour must pay at least $50.72 per hour on a salary basis if at least $1,014.30 per week for employee overtime exemption.
Updating
Employers must always be aware of new legislation about FLSA regulations. Being aware of new legislation and updating your exemption classifications as well as your human resources materials keeps you in legal compliance for overtime exemptions. Familiarize yourself with any new legislation about the FLSA and upcoming overtime provisions. Contact an HR software solution provider to help you follow and comply with updated regulations.
FAQ
What happens if an employee’s duties change?
If an employee’s duties change significantly, their classification should be reviewed immediately. Adjust their exempt or non-exempt status if their new role no longer meets the criteria for their current classification.
Can a non-exempt employee become exempt?
Yes, if their job responsibilities and salary meet FLSA exemption requirements. A promotion or change in duties may qualify them for reclassification.
Are part-time employees always non-exempt?
No, part-time employees can be exempt if their role and salary meet FLSA exemption criteria. However, many part-time roles fall under non-exempt status due to their hourly nature.
Check Your Compliance for Exemption Status
With new legislations come new challenges and opportunities for you as an employer and as a practitioner. Reviewing your employee classifications is important to ensure you appropriately categorize your employees into exempt vs. non-exempt statuses. Check federal and state laws to comply with laws and update your employee handbook for rules concerning exempt and non-exempt employees.
Recommended Reading: Why You Need a Custom Employee Handbook Instead of a Template
Contact HR for Health for Help With Your Employees’ Classifications
Before classifying and treating any employee as overtime-exempt, employers should confirm the employee satisfies the relevant tests for overtime exemption under federal and state laws. At HR for Health, our team of HR compliance experts can provide you with answers for your specific practice while our platform automatically maintains your documentation. Compliance with these labor laws is critical for reducing your legal liability. Contact us today to learn more about how we can help you.
