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.