ABC Taxes, Tips & Tools

In this time of high unem­ploy­ment and lay­off, employ­ers are expect­ing employ­ees to do more in the same amount of time.  In this envi­ron­ment it is pos­si­ble for employ­ers to run afoul of the Fair Labor Stan­dards Act (FLSA), which dic­tates over­time pay for non-exempt employees.

Exempt verses Non-exempt Worker Clas­si­fi­ca­tion: The first area where an employer may run afoul of FLSA is in the area of exempt (from over­time) verses non-exempt employee clas­si­fi­ca­tion.  The exempt employee fits into one of the fol­low­ing categories

• Exempt exec­u­tive employee
• Exempt admin­is­tra­tive employee
• Exempt pro­fes­sional employee
• Computer-related pro­fes­sional
• Out­side sales employee

Exempt Exec­u­tives and Exempt Admin­is­tra­tors: Just because an employee receives a salary instead of an hourly wage does not mean that they are auto­mat­i­cally exempt employ­ees. This error is one com­monly made by employ­ers.  Many low level admin­is­tra­tive per­sonal may be salaried, but not exempt. A sec­re­tary is still a sec­re­tary even when s(he) is called an admin­is­tra­tive assis­tant.  To be a true administrator/executive the employee must per­form high level work includ­ing: Super­vi­sion, man­age­ment and be able to input on hir­ing and fir­ing decisions.

Exempt Pro­fes­sion­als: The job duties of the tra­di­tional “learned pro­fes­sions” are exempt.  These include lawyers, doc­tors, den­tists, teach­ers, archi­tects, and clergy.  Also included are reg­is­tered nurses (but not LPNs), accoun­tants (but not book­keep­ers), engi­neers (who have engi­neer­ing degrees or the equiv­a­lent and per­form work of the sort usu­ally per­formed by licensed pro­fes­sional engi­neers), actu­ar­ies, sci­en­tists (but not tech­ni­cians), phar­ma­cists, and other employ­ees who per­form work requir­ing “advanced knowl­edge” sim­i­lar to that his­tor­i­cally asso­ci­ated with the tra­di­tional learned pro­fes­sions.  Some employ­ees may also per­form “cre­ative pro­fes­sional” job duties which are exempt.  This clas­si­fi­ca­tion applies to jobs such as actors, musi­cians, com­posers, writ­ers, car­toon­ists, and some jour­nal­ists.  It is meant to cover employ­ees in these kinds of jobs whose work requires inven­tion, imag­i­na­tion, orig­i­nal­ity or tal­ent; who con­tribute a unique inter­pre­ta­tion or analy­sis.  Pro­fes­sion­ally exempt work­ers must have edu­ca­tion beyond high school, and usu­ally beyond col­lege, in fields that are dis­tin­guished from (more “aca­d­e­mic” than) the mechan­i­cal arts or skilled trades.

Iden­ti­fy­ing most pro­fes­sion­ally exempt employ­ees is usu­ally pretty straight­for­ward and uncon­tro­ver­sial, but this is not always the case.  Whether a jour­nal­ist is pro­fes­sion­ally exempt, for exam­ple, or a com­mer­cial artist, will likely require care­ful analy­sis of just what the employee actu­ally does.

Other errors employ­ers make with regard to exempt sta­tus include:

• Mis­clas­si­fy­ing assis­tants and com­puter pros
• Switch­ing employ­ees to exempt once they hit a pay threshold
• Look­ing only at job titles, not at employ­ees’ duties
• Wrongly assum­ing all help-desk work­ers qual­ify for the com­puter exemption
• Not giv­ing exempt exec­u­tives true hiring/firing authority
• Allow­ing cler­i­cal tasks to defeat admin­is­tra­tive exemption
• Look­ing only at the degree, not the job, to clas­sify learned professionals
• Wrongly assum­ing all med­ical staff qual­ify for the pro­fes­sional exemption
• Jeop­ar­diz­ing exempt employ­ees’ sta­tus if you pay them extra–this has to do with the idea of salary base, pay­ing extra is incon­sis­tent with a salary.
• Not ensur­ing store man­agers’ pri­mary duty is management

Par­tic­u­lar jobs may be com­pletely excluded from cov­er­age under the FLSA over­time rules.  There are two gen­eral types of com­plete exclu­sion.  Some jobs are specif­i­cally excluded in the statute itself.  For exam­ple, employ­ees of movie the­aters and many agri­cul­tural work­ers are not gov­erned by the FLSA over­time rules. Another type of exclu­sion is for jobs which are gov­erned by some other spe­cific fed­eral labor law.  As a gen­eral rule, if a job is gov­erned by some other fed­eral labor law, the FLSA does not apply.  For exam­ple, most rail­road work­ers are gov­erned by the Rail­way Labor Act, and many truck dri­vers are gov­erned by the Motor Car­ri­ers Act, and not the FLSA.

Small busi­ness ser­vices and tax­a­tion are our busi­ness. If you need help Please give Art & Busi­ness Con­sult­ing a call. We would love to engage you as a client.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in.   Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice. Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

Tags: exempt exempt, FLSA, FLSA pitfall, non-exempt employee

This entry was posted on Friday, November 20th, 2009 at 6:39 pm and is filed under HR Info. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.