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It Just Got More Expensive to Misclassify Exempt Employees!

August 1, 2016, The DOL Increased Penalties for Worker Misclassification

Business owners, COO and, Nonprofits, is your workforce ready? As the December 1st “Overtime Rule” deadline looms, the Department of Labor has increased penalties for employers who “intentionally” or “unintentionally” misclassify workers. Along with other federal agencies, the DOL has implemented the Federal Civil Penalties Inflation Adjustment Act.

Effective August 1, 2016, penalties will increase by as much as 150% and will apply to violations occurring after November 2, 2015. It has been over a decade since federal fines were adjusted for inflation, but future penalties are set to adjust annually. That’s right, it just got a lot more expensive to misclassify workers.

If you haven’t already heard, December 1, 2016, is the deadline for all employers to comply with the new FLSA overtime rule. Here’s the rule, employees (salaried workers who do not get overtime pay), must:

  1. Earn a minimum salary ($913 per week or $47,476 per year) and
  2. Perform all of the major duties for the exception claimed by the employer

Misclassification of employees who meet the income requirement, but do not meet the duties test is very common and potentially very costly.


An employee properly classified under the “executive/manager” exemption, must meet the minimum salary threshold. In addition to salary requirements, they must:

  • Manage an organization, department, or division
  • Have the power to h hire and fire, or make equally significant decision
  • Regularly direct the work of at least two full-time employees or the equivalent
  • Frequently exercise discretionary powers in the performance of his/her duties
  • Employee must be “primarily engaged” in duties that meet tests 1 through 4 above, meaning more than 50% of the employee’s work time must be spent engaged in these essential duties

That’s a tall order! Do you have employees classified as “executive or managers” who don’t pass this test? If you’re not sure we recommend an HR Consultation to determine any compliance gaps. Each “White Collar Exemption” like the “Executive/Managerial”, “Administrative”, “Professional”, and “Computer” is a legal classification that has stringent requirements and separate essential duties test.


Industries that may be particularly affected by the new rules and misclassifications are:

  • Manufacturing
  • Restaurants
  • Retail
  • Nonprofit
  • and more

Many restaurant, retail, office managers, and supervisors do not pass the FLSA essential duties test or meet the minimum salary.

It is important to recognize that the “White Collar Exemption” was intended for highly compensated office workers and professionals like Doctors, Lawyers, District Managers, Accountants, Directors and others. These highly skilled workers are typically highly compensated, and do not need the minimum salary and overtime protections afforded by the FLSA.

However, the “White Collar Exemption” was not intended to deny workers earning lower wages from receiving overtime pay. Often these workers have little or no independent decision-making authority and do not pass the essential duties test or meet the minimum salary threshold.


Countless nonprofits and small businesses have asked, “Are there are exceptions for the little guy, nonprofits, or churches?”

The answer is no – there are no automatic exceptions. If your organization is currently subject to minimum wage and overtime laws, it will be subject to the new rules. Very few organizations or employees are relieved from compliance with the Fair Labor Standards Act (FLSA).

December 1, is just three months away. Is your organization in compliance? An HR Compliance Audit can help you identify your compliance gaps, save you time, and reduce the risk of employee claims, lawsuits, and agency audits.


The rule, salaried workers who not paid overtime must:

  1. Earn a minimum salary ($913 per week or $47,476 per year) and
  2. Perform all of the major duties for the exception claimed by the employer
  3. December 1, is just three months away. 


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Author: Bernadette Jones, SPHR, SHRM-SCP

Visionova HR Consulting


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