If you’re a payroll professional, you understand what the FLSA is and what it defines. If you’re not a payroll professional, the terms, language, and specifics of the classifications can be confusing, often resulting in misclassification of employees. We’re here to help break it all down for you.
FLSA stands for the Federal Labor Standards Act, and it’s managed by the US Department of Labor. If you want the formal speak and all the little details, you can visit their website here. If you want the short plain English version, keep reading below!
Work Week vs. Pay Period
Employers can define the start and end day of their work week within any given seven day period. It can be traditional and run Sunday to Saturday or it can be completely wacky and run from 9:00pm on Tuesday through 8:59pm on Monday. As long as it’s clearly defined and comprises a seven day period, you can pick whatever you want, though most payroll specialists would prefer the traditional.
Pay periods define the work weeks / work days for which an employee will be paid on a given check date. There are some standard pay periods:
- Weekly → once per week
- Bi-Weekly → every other week
- Semi-Monthly → twice per month
- Monthly → once per month
You can choose to pay current (e.g., semi-monthly pay period runs the 1st through the 15th, with the check date on the 15th) or you can pay in arrears (e.g., bi-weekly pay period runs the Sunday the 1st through Saturday the 15th, with the check date on Friday the 22nd).
Hourly vs. Salary
These terms are fairly straightforward and simple to define.
- Hourly → Paid a set rate per hour for each hour worked in a pay period (e.g., $15.00 per hour)
- Salary → Paid a set amount for a set number of hours worked in a pay period (e.g., $1,000 per week for 40 hours worked)
Exempt vs. Non-Exempt
This is where it starts to get tricky.
- Exempt → not eligible for overtime pay
- Non-Exempt → eligible for overtime pay, 1.5 times their regular rate for hours worked over 40 in a given work week
Many employers think that Salary = Exempt, but that’s not entirely true. There are specific criteria that an employee’s job description must fit in order to be classified as Exempt from overtime, and as an employer, the burden is on you to make certain the Exempt classification is justifiable.
Further complicating the situation, a non-exempt employee can be paid a salary, but they still must track their hours and be paid overtime for hours worked over 40 in a week. Additionally, many states have their own wage and hour laws that may supersede the federal law if it’s of a greater benefit to the employee – like California which requires overtime for all hours worked over 8 hours in a given work day.
How Should I Pay My Employees?
Because overtime is based on a work week, the best practice is to align pay periods with work weeks so overtime is easily tracked. SmartBooks generally recommends bi-weekly payroll for companies with non-exempt employees and semi-monthly payroll for companies with all exempt employees. However, many states have laws in place that determine pay frequency for the different classification types and as well as for specific industries.
This issue will come under even greater scrutiny later this year when the Department of Labor’s new overtime regulations go into effect on December 1, 2016. We can help you through those muddy waters! We can help you analyze your current and future needs and make cost-effective and time-saving recommendations that will streamline your payroll processes and ensure compliance with local, state, and federal laws.