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The Fair Labor Standards Act and Exempt/Non-Exempt Employees

Classifying an employee as exempt or non-exempt can be a tricky analysis, and failure to properly classify an employee can result in a loss of the exemption

Sharon S. Moyer  

The Fair Labor Standards Act (FLSA) sets forth, among other things, the federal standards for basic minimum wage and overtime pay for employees. The FLSA affects nearly all employers, both public and private, though there are some exceptions.

The FLSA exempts some employees from its minimum wage and/or overtime pay requirements. Whether an employee is exempt generally depends on the employee’s job duties and compensation arrangement. As many employers agree, however, classifying an employee as exempt or non-exempt can be a tricky analysis. Failure to properly classify an employee can result in a loss of the exemption. So what can an employer acting in good faith do to protect itself in the event that an employee is misclassified?

First, the employer may establish a complete defense to an FLSA claim where it has had an attorney make the exempt/non-exempt determination based on opinion letters and/or administrator interpretations from the Wage and Hour Division of the U.S. Department of Labor, as well as other applicable law.

Second, where the employer has a proper, clearly communicated policy against improper pay deductions, the employer will not lose the exemption. A clearly communicated proper policy shall:

  • prohibit improper pay deductions;

  • include a complaint mechanism;

  • provide for reimbursement of any improper pay deductions; and

  • a commitment to comply with the FLSA requirements in the future.

29 C.F.R. § 541.603(d) provides that:

“[T]he best evidence of a clearly communicated policy is a written policy that was distributed to employees prior to the improper pay deductions by, for example, providing a copy of the policy to employees at the time of hire, publishing the policy in an employee handbook or publishing the policy on the employer's Intranet.”

Third, if an isolated incident occurs where an improper deduction is made from an employee’s pay, then the employer may simply reimburse the employee upon discovery.

Should you need assistance in properly classifying your employees to ensure compliance with the FLSA, or in drafting a proper policy to meet the FLSA criteria above, Sacks Tierney is here to help. You may also find guidance at the U.S. Department of Labor's Wage and Hour Division website.