Why Are Correct Pay Classifications Important?
Pay classifications are a critical topic. As a business owner, you don't want to have exposure to risk. The amount of money that we see in back wages is huge, so you must pay close attention to pay classifications.
Did you know that 70-90% of the businesses out there get pay classifications wrong?
Complaints are the main driving force for pay classifications - if someone feels as though they haven’t been paid right, they will complain. This often happens through employees calling the Department of Labor (DOL) and submitting a complaint due to a misclassification.
If the DOL discovers a valid complaint they will come in and audit your business. We see hundreds of millions of dollars in back wages every year due to pay classification audits.
The phone calls after a DOL audit are also something that you want to avoid at all costs. It is not uncommon to see two to three more follow-up audits from other agencies like OSHA and the IRS following a DOL audit.
Here are the four most common pay classifications:
Except / Salary - A salaried employee receives the same amount of income each week regardless of how many hours worked.
Non-Exempt / Hourly - A non-exempt employee qualifies for all overtime pay for hours worked beyond 40 hours a week.
Commission / Salary - A salaried employee receives the same amount of income each week regardless of how many hours worked. A commissioned employee receives a commission based upon the completion of a task or goods sold.
1099 Contractor - A 1099 employee can be paid by the hour or by project or commission.
What do you do if you’ve had a pay misclassification?
First things first...FIX IT - We tell our clients all of the time, good faith and effort go a long way with the DOL.
Get help - Expert advice and help can save you risk exposure, time, and money. We would love to help you! Reach out to us here.
Job descriptions are important - Make sure you have an FLSA audit done with a complete set of job descriptions. For tips on creating powerful job descriptions, click here.
Wages are wages - You are obligated to pay your employees all wages earned.
In conclusion, make sure to get help with this and get it right! For additional information about pay classifications, click here to watch our Pay Classifications Coffee Break.