What Penalties Occur If I Classify a Nonexempt Employee as Exempt?

  1. Overtime
  2. What Penalties Occur If I Classify a Nonexempt Employee as Exempt?
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Under the Fair Labor Standards Act (FLSA), which is the federal law governing overtime pay, if an employee is nonexempt from its requirements, an employer cannot refuse to pay them overtime pay for any time worked over 40 hours in any workweek.

State laws governing overtime pay are generally modeled after those contained in the FLSA, but, in some cases, may impose additional conditions on employers with regards to nonexempt employees and overtime.

Because of this, some employers misclassify nonexempt employees as exempt in order to save money by not having to give them overtime pay. However, there can be costly consequences for employers who choose to engage in this practice.

Penalties for Misclassifying an Employee as Exempt

With regards to the FLSA, whenever an employer wrongfully classifies an employee as exempt, who is, in fact, nonexempt, they may be held liable for all unpaid overtime owed to that employee going back as far as 3 years prior to the date of the claim.

In addition, the court may levy penalties against that employer in the form of liquidated damages in an amount equal the sum of unpaid wages the employee is owed, effectively doubling the amount of unpaid wages the employee may recover.

Furthermore, those employers who willfully and/or repeatedly misclassify employees as exempt are subject to up to $1,000 in civil penalties for each violation and may be criminally prosecuted as well, which would expose them to a fine of up to $10,000 and/or incarceration.

Exemption Criteria

The Department of Labor (DOL), which enforces the FLSA, will make a determination between an exempt or nonexempt employee by evaluating the nature of the employee’s employment, including:

  1. Whether or not the employee is paid a salary;
  2. The amount of salary paid to the employee; and
  3. The nature of the primary duties performed by the employee.

State and local regulations may specify different exemption criteria than the FLSA. As a result, the employee may not satisfy FLSA exemption requirements and still be entitled to overtime pay under state or local regulations.

Thus, in order to avoid penalties, the employer should abide by the law (FLSA or state law) that is the most advantageous to you (the employee) on any specific wage and hour issue.

Contact an Experienced Employment Law Attorney

If you are being classified as an exempt employee when you are, in fact, nonexempt, your employer may be exposed to severe penalties. On the other hand, you may be entitled to substantial back pay and liquidated damages. For more information, contact an experienced employment law attorney to evaluate your case.

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