Smart Business Magazine, June 2013

12 Smart Business Northern California June 2013 Fair Labor Standards Act How to be compliant with federal and state laws One law small businesses frequently underestimate is the misclassification of employees as being exempt from Fair Labor Standards Act FLSA overtime rules an oversight that could cost millions in employee misclassification lawsuits Minimum wage rates also pose problems because there may be different standards at federal state and local levels Companies need to know the basics of the FLSA in order to determine if theyre in compliance says Tracy Baskin payroll compliance analyst in Wage and Hour Compliance at TriNet Inc Smart Business spoke with Baskin about FLSA issues and how to stay compliant What are typical FLSA compliance issues Many businesses have problems keeping in step with minimum wage rates An employee having worked a year or so at a given rate of pay may be due retroactive payments because of an increase in state or local minimum wage rates Employees paid at the lower rate of the previous calendar year could file a complaint with the Department of Labor DOL which could lead to an audit It can be even more of a problem with exempt employees many companies arent even aware there is a minimum salary basis Exempt employees paid at a rate less than minimum wage would need to be increased to at least 16 an hour to be in compliance with Californias requirement for executive administrative and professional exempt employees For example computer professionals are employees who typically write or modify programming have their own minimum which is 3990 per hour The most impactful item is overtime compensation Companies are not accurately calculating overtime pay because they arent including additional earnings such as bonuses or commissions which need to be included to comply with the FLSA How do you determine if an employee should be classified as exempt and nonexempt The FLSA provides general guidelines Youll need to concentrate first on the employees primary duties Are they managers who customarily and regularly direct the work of two or more employees Do they set company policies or authorize suggest or recommend the hiring and firing of others Employees who have advanced knowledge in a field of science whether college or beyond may qualify for certain professional exemptions However college graduates are not necessarily exempt In California the professional exemption is reserved for those licensed or certified by the state generally in the fields of law medicine dentistry architecture engineering teaching and accounting Typically exempt employees must also be paid at least 455 per week on a salary or fee basis Nonexempt employees have to be paid a certain amount per hour If theyre tipped they must earn enough in tips to bring them up to minimum wage Theyre the average employee and are paid time and a half if they work in excess of 40 hours in a workweek While most exempt employees are required to receive salaries not all salaried workers are necessarily exempt As a rule of thumb you can say that an employee whose duties include supervising two or more employees authority to hire fire and promote and giving job assignments to others are usually exempt But its not the job title that matters its the actual job duties that determine whether an employee is exempt or not What are the penalties for noncompliance Penalties vary depending on what the employee has presented to the DOL whether its an overtime violation he or she wasnt paid the minimum wage or a simple miscalculation If the DOL considers the violation to be willful because a business has had this offense before and not corrected it fines can be doubled or tripled Our recommendation is to pay employees what they are due If you dont you should expect someone will eventually reach out to the DOL which will open the company up to a much larger audit The DOL will examine the status of all employees and ask for the documentation to see the criteria the business used to determine their status as exempt or nonexempt So its best for everyone to make sure employees are classified properly and paid what they are owed TRACY BASKIN Payroll compliance analyst Wage and Hour Compliance TriNet Inc tracy baskin@ trinet com Insights Human Resources Outsourcing is brought to you by TriNet Inc WEBSITE Visit www trinet com incredible default htm and see TriNet clients that have mitigated their HR risks INTERVIEWED BY ROGER VOZAR INSIGHTS HUMAN RESOURCES OUTSOURCING