Between the internet and Law and Order-type television shows, there is no shortage of myths and misconceptions when it comes to the law. However, as an employment attorney, there is one that I hear over and over again and it causes a ton of headaches (and costs a ton of money), especially for small employers. It has to do with employee pay. The typical conversation goes something like this:

Client: Benton, I have an employee who is complaining about working too much and getting paid too little.

Me: OK, tell me a little about this employee.

Client: He’s my assistant. His job is pretty much to do what I tell him, when I tell him.

Me: How many hours a week is he working?

Client: It varies, but anywhere from 35 to 60.

Me: Do you pay him overtime?

Client: No, I don’t need to pay him overtime. He’s on salary.

This is the point in the conversation when I get out of my chair and ring the giant gong in my office.  Many employers believe that paying an employee a salary automatically means that the employee does not need to be paid overtime. That is SIMPLY NOT TRUE!

The federal Fair Labor Standards Act (FLSA), among other things, establishes a default rule that employees who work more than 40 hours in a given week must be paid an overtime premium of 1.5 times their regular hourly rate for all hours worked over 40 in a given week. Some classifications of employees, however, are exempt from the FLSA’s overtime provisions. Payment on a salary basis is indeed one of the several criteria that must be met in order for an employee to be classified as exempt, but payment on a salary basis, standing alone, is most definitely not enough to make an employee exempt. Some of the most common exempt classifications are: executives; professionals; administrative employees, and outside sales. For employees to qualify under these classifications, they must meet each of the following criteria, of which salary is but one.

Executive Exemption:

• Paid on a salary basis of at least $455/week;
• Primary duty is management of the enterprise or of a customarily recognized department or subdivision;
• Customarily and regularly directs the work of two or more other employees; and
• Has authority to hire or fire other employees or exert influence over such decisions. 

Administrative Exemption:

• Paid on a salary basis of at least $455/week;
• Primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers ; and
• Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 

Professional Exemption:

• Paid on a salary basis of at least $455/week;
• Primary duty is the performance of work requiring advanced knowledge requiring exercise of discretion;
• Advanced knowledge must be in a field of science or learning; and
• Requires prolonged course of specialized intellectual instruction. 

Outside Sales:

• Primary duty is making sales or obtaining orders or contracts for services or facilities for consideration paid by customer; and
• Customarily and regularly engaged away from the employer’s place(s) of business in performing such primary duty (remember, this is the OUTSIDE sales exemption).

These are but a few of the most common exemptions. I set these out only to illustrate that each exemption requires that several criteria be met, only one of which is payment by salary. Unless an employee meets each of the criteria necessary to establish an exemption, an employer must:

• Track the employee’s hours; and 
• Pay an overtime premium for hours worked in excess of 40 in a given week.

An employer who fails to do so risks liability to the employee for:

• Back wages for two to three years;
• "Liquidated damages” in an amount equal to the back wages owed; and
• Attorneys’ fees.

As you can see, the FLSA has real teeth. Don’t get bitten.

This content has been prepared for general information purposes only. This information is not intended to provide specific legal advice. Legal advice is dependent upon the specific circumstances of each situation. The information provided cannot replace the advice of competent legal counsel by a licensed attorney in your state.

Benton L. Toups is a partner at Cranfill Sumner & Hartzog LLP and serves as vice-chair of the Employment Law Practice Group. His practice concentrates on representing businesses in all aspects of labor and employment law. A firm believer in the adage that “an ounce of prevention is worth a pound of cure,” Toups counsels employers on day-to-day issues and assists them in developing and implementing policies to avoid employment litigation. To contact Toups, call (910) 777-6011 or email him at [email protected].