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The importance of employee classification

Nov. 12, 2018
When it comes to your employees, it is worth taking the time to ensure they are classified properly.

Properly classifying employees is important in order to avoid litigation, said Sona Ramirez, a board-certified employment lawyer at Clark Hill Strasburger, speaking at a recent NationaLease meeting.

There are three types of employee classification: hourly (non-exempt), salaried (exempt) and independent contractors. One area where employers run into trouble is in improperly classifying exempt vs. non-exempt and employees vs. independent contractors.

Non-exempt employees must be paid at least minimum wage and time-and-a-half of their regular rate of pay for all hours worked over 40 hours in a workweek.

Ramirez shared information on trouble spots and offered some best practice tips concerning non-exempt employees.

  • Trouble areas: You must pay non-exempt employees for all hours worked. Be careful of employees working off the clock. Be careful of technology and mobile devices that could result in employees working off the clock. Remember that for non-exempt employees, overtime has to be paid at time-and-a-half of the employee’s regular rate of pay.
  • Best practices: Set payroll policies that cover not working off the clock and reporting all time worked. Train your managers to address payroll violations. It is good idea to periodically audit your employee classifications.

Exempt employees must qualify for an identifiable exemption such as white-collar exemptions for administrative, executive, professional and outside sales positions. In order to quality for an exemption, the employee must meet three tests: salary basis test, salary level test ($455 per week, threshold) and duties test.

Things can get tricky when it comes to independent contractors and Ramirez gave meeting attendees a list of important questions to ask to determine if someone should be classified as an independent contractor:

  • How is the person paid? Hourly or per job?
  • Do you have an independent contractor agreement?
  • Who controls how the work is performed?
  • Who sets the schedule?
  • Does the contractor work for several companies or just your company?
  • Who provides the tools?

Ramirez closed this section of her presentation with some general best practices relating to employee classification:

  • Understand payroll practices before a complaint is made.
  • Audit job position to make sure they are classified properly.
  • Audit how starting pay, current pay and merit increases are implemented.
  • Understand why there are disparities in pay and how employees are classified.

When it comes to your employees, it is worth taking the time to ensure they are classified properly.

About the Author

Jane Clark | Senior VP of Operations

Jane Clark is Senior Vice President, Operations for NationaLease. Prior to joining NationaLease, Jane served as Area Vice President for Randstad, one of the nation’s largest recruitment agencies, and before that, she served in management posts with QPS Companies, Pro Staff, and Manpower, Inc.

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