Misclassifying overtime exempt employees could cost you

Many small businesses don’t have the budget for a dedicated HR employee, but this does not mean the U.S. Department of Labor will cut you any slack if you violate the federal rules of the Fair Labor Standards Act (FLSA). The FLSA sets the regulations regarding overtime and overtime exempt employees. In the restaurant industry, typically only managers and other administrative roles are classified as overtime exempt.

Benefits of overtime exemption

Restaurant managers often work more than 40 hours a week, and sometimes as many as 55 or 60. It probably comes as no surprise to you that hiring, training, staffing and supervising are all time consuming duties, and that’s before the first customer is served. By classifying managers as exempt, restaurants are able to better budget for their staffing needs.

However, it is important to note that simply giving an employee a management position does not make them exempt. While most managers and assistant managers are primarily hired to supervise staff and manage the restaurant, the title and having the right duties in their job description is not enough. They also have to meet other specific requirements, or they must be paid overtime.

Requirements for overtime exemption

The regulations set forth in the FLSA give restaurant and other small business owners a checklist for ensuring salaried employees are correctly classified as overtime exempt. This includes:

  • Being paid a set salary
  • Meeting minimum pay requirements for exempt employees
  • Performing management, administrative or professional duties

Paying a set salary

In order to qualify for exemption under the “executive” category, a restaurant manager must be paid a set salary. Perhaps the easiest of these qualifications to meet, it is still important not to overlook it. You should be paying salaried managers the same amount each paycheck, regardless of how many hours they worked during the pay period.

There are specific instances where pay can be docked for salaried employees, but they are few and far between. You may want to consult an attorney who specializes in employment law if you find yourself considering docking an employee’s pay frequently.

Minimum pay requirements

The second qualification of being classified as overtime exempt is to meet the minimum pay requirements for exempt employees. As of January 2016, this minimum is $455 per week. The U.S. Department of Labor has proposed more than doubling this minimum, but for the time being an annual income of $23,660 or above is enough to meet this threshold.

Exempt employee duties

Lastly, overtime exempt employees must be tasked with performing the duties of a supervisor. This is the qualification that spurs the most overtime litigation in the restaurant industry, so this warrants careful attention. As an exempt employee, restaurant manager duties should include:

  • Managing the restaurant during shifts, or a department within the restaurant (front of house, back of house, etc.)
  • Supervising at least two employees during their shifts
  • Having the authority to make hiring/firing decisions, or having a say in these decisionsBeware of Non-Exempt Duties

Even when you assign these duties to exempt managers, you’re not out of the woods. Many managers are required to work serving shifts or perform other non-exempt duties in order to meet customer demand and budgetary restrictions. Known as concurrent duties, these must be carefully managed to avoid putting the employee’s exempt status in jeopardy.

When possible, managers should decide when they pitch in to perform non-exempt duties, and should do so no more than half of their working hours. It is vital to keep a manager’s primary duties those of a supervisor. This includes:

  • Direct supervision of staff
  • Scheduling shifts
  • Tracking hours worked by hourly employees
  • Making significant management decisions
  • Hiring and firing staff

By equipping your managers with the resources to create a schedule that prevents over- or understaffing and accurately track the hours each staff member works, you can also reduce their workload and help them work more efficiently. Homebase provides online tools allowing you to keep track of exempt employee shifts and duties.

Penalties for improperly classified employees

If an employee believes you are in violation of FLSA, The Wage and Hour Division of the Department of Labor will be tasked with investigating. If they find you had improperly classified employees, you could face:

  • Payment of back pay, as well as “liquidated damages” equal to the owed back pay
  • Private civil suit filed by the employee (or employees) to collect back pay, damages and legal fees
  • Imprisonment, especially if the violations were intentional

Get up to date with the U.S.  Department of Labor’s final ruling.

Any questions?

While being familiar with the FLSA overtime exemption rules are key to ensuring your employees are not misclassified, it is also a good idea to discuss any concerns you may have with an employment law expert. Homebase HR and Compliance can also help you set up new policies and get training on this HR topic and more.

It is also important to note that some state laws vary, and your state may have salary minimums and other regulations that differ from the federal law. Paying to consult with a lawyer to be sure you are on the right side of the regulations is always going to be more cost-effective than paying for violations or paying out after a lawsuit.

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