Misclassification of Employees: How Companies Avoid Paying Overtime

What you need to know if your paycheck is short

Has this ever happened to you? You put in a ton of overtime at work, forego fun activities and family time, and come home exhausted for days or weeks on end. You figure it’ll all be worth it once you get that big overtime paycheck.

Then when your check comes in, it’s suspiciously light.

This is not as uncommon as you’d think. One sneaky way companies avoid paying overtime is by misclassifying employees as exempt so they don’t qualify for time-and-a-half.

Let’s talk about how companies game the system—and what you should do if you think it’s happening to you.

Who is exempt from overtime pay?

There are two types of employee classifications: exempt and non-exempt. Exempt basically means “exempt from overtime.”

Under the Fair Labor Standards Act (FLSA), employers are required to pay non-exempt employees at least the minimum wage, plus time and a half for all hours worked over 40 in a week.

But some categories of employees, those who are classified as exempt, don’t qualify for time-and-a-half no matter how many hours they work. Exempt employees may include:

Executives

Despite the name, you don’t have to be at the top of your company’s leadership to qualify for the executive exemption.

The bare minimum qualification is earning at least $455 a week on a salary basis, leading a department or division, overseeing a team of at least two people, and having the authority to hire and fire.

While this description includes C-level executives, it may also describe lower-level managers and supervisors, depending on your company and duties.

Administrative workers

Administrative workers who are exempt must also earn at least $455 a week on a salary or fee basis. Their main job duties may include administrative office management, as well as “the exercise of discretion and independent judgment with respect to matters of significance.”

Yes, that is a very broad description, which leaves employers a lot of latitude when determining who is exempt and who isn’t.

Learned or creative professionals

There are two types of professional exemptions: “Learned professional” and “creative professional.”

Learned professionals rely on advanced expertise in a field (such as science), gained during a period of prolonged study, to do their job. Creative professionals perform duties involving imagination and original invention in a recognized creative field.

Both of these need to earn at least $455 per week on salary to be considered exempt.

Computer employees

There’s a long list of the specific duties and job titles applicable to employees under this category, but the gist is that if you work with computer systems, hardware or code all day, you most likely fall under this heading.

This is one of the few categories that can be either hourly or salary to be considered exempt. If you’re salary, you have to earn at least $455 a week to qualify. If you’re hourly, you must be paid at least $27.63 per hour.

Outside salespeople

To be considered an “outside salesperson,” your primary duties must include selling products, services or contracts—off your employer’s premises. If you travel a lot to make sales, you’re most likely an outside salesperson.

What to do if you think you’re being misclassified

When it comes to judging who is and isn’t exempt, your job duties matter more than your title. So if your title includes “outside sales” but you rarely leave your office, you may have a misclassification problem.

It’s illegal to fire someone for bringing this error up, so it’s OK to pursue the conversation with your HR representative.

If it’s clear to you that your employer is miscategorizing you and isn’t planning to fix the issue or reimburse you, you may need to seek legal remedies.

If you think you’re being misclassified, we can help you get to the bottom of it. Email murphy@phillyemploymentlawyer.com, or call 267-273-1054 for a free consultation.