Exempt vs. Non-Exempt Employee Classification

Exempt vs. Non-Exempt Employee Classification

Exempt vs. Non-Exempt Employee Classification

Most business owners find it difficult to distinguish between the exempt and non-exempt employees, and it also causes a great deal of confusion between employers and employees. Whether you are entitled to the overtime payment or not (usually means the extra time you work after the standard 40 hours for every week), depending on your exemption position according to the FLSA (Fair Labor Standards Act), remains the primary ambiguity in this regard. However, various other jobs don’t fall under these standards, like agricultural jobs, truck driving, and others, which are usually governed by other law organizations.

Majority of citizens in U.S come under the FLSA and you can either classify them as exempt or non-exempt, depending on the overtime pay regulations. As an amateur, you may not have a clear idea of what category of workers these are, but don’t ponder over it because that’s what we are here for today! We’ll give you a quick breakdown of what rules apply to which workers. So let’s dive right in.

Non-Exempt Employees

If you work as a non-exempt employee for more than the standard time per week, that’s 40 hours, then according to the FLSA policies, you are entitled to extra pay for the time and one-half of the standard hours of overtime work you spend. Concisely, if you are working on the hourly basis and get paid for the hours you work, apart from the standard hourly paid rate, then you are classified as a non-exempt employee. If you are a non-exempt employee, then you will not qualify for the numerous white collar job exemptions. Such employees usually include maintenance, technicians, construction, semi-skilled, blue collar, laborers, and clericals.

Exempt Employees

Such employees don’t get any protection and cover from the FLSA, and this means that they are not entitled to any overtime payments. According to the FLSA, airline and sales employees are exempt, and if you meet with three points, then you are in this category. These are the rules that apply:

  • If you are getting a payment of $23,600 for the year
  • If you get paid on the wage basis (doesn’t apply to people who work on “hourly basis,” like school teachers, and physicians)
  • If you perform duties on the job that are classified as exempt

To qualify for the exempt status, the nature of your job is also taken into account. Typically, the duties of exempt employees are high, and the FLSA splits them into three further categories:

Executive

Employees are exempt from the FLSA policies and rules if they perform duties such as:

  • Supervise more than one employee
  • Work as a manager
  • Having the power to hire, assign tasks, fire and so on.

In most cases, such people are usually considered in charge or the boss of the business or company.

Administrator

For people who have duties that support the business, like public relations, accounting, human resources and payroll staffs, then they fall under this category. Duties must also include:

  • Office work
  • Tasks related to the management or customers of the business
  • Independent discretion and judgment of significant business matters

GIFT CARDS | HOW TO GENERATE MORE SALES

This whitepaper will help you have a strategy to encourage gift card sales and help to bring in new clients.  Check out these 5 simple steps that you will discover.

Government Policies

Government Policies

Most small business owners are well informed about what government policies apply to them, specifically what FLSA (Fair Labor Standards Act) policies they need to be in accordance with according to their business. However, an increasing number of small businesses have been cited for policy violations. It makes one wonder if small businesses are as informed as they think they are about some of the more common FLSA policies. Below is a list of some of the more egregious violations.

Unpaid Compensable Time

A good example is unpaid compensated time; this is when an employee works through lunch but is not paid for that time. That is if the lunch is unpaid, but the employee engages in work that benefits the company they can be entitled to appropriate compensation. Granted, there is some gray area to this policy, but it is one that is in need of handling through communication with the employee and the proper authorities instead of hoping that no one notices.

Unpaid Vacation Time

Unpaid vacation time occurs in mainly one instance: when an employee leaves (whether through being fired or quitting) they are entitled to their paid vacation time. Though the FLSA does not require paid vacation, if the company offers it then it is considered part of the employee’s compensation for their work, just like their wage or salary. If the employee is no longer working for the company, they are entitled to these earnings.

Overtime Status

The FLSA guarantees overtime pay to non-exempt employees. Conversely, they do not guarantee it to exempt employees. The rub is the classification. Now, there are numerous criteria to determine which classification an employee falls into, but it is up to the small business owner to make sure that they are correctly designating the people that work for their company. This can be a major violation if the government finds the owned to be non-compliant.

Overtime Pay

Likewise, if the calculation of overtime pay is determined to be faulty, it can be a major FLSA violation. The FLSA states that any non-exempt employee working over 40 hours in a workweek is to be paid one and half times their wage. Of course, there can be a miscalculation as to when exactly an individuals work week begins or ends, which is to say that if a small business has non-exempt employees, it needs to double check that it is paying the overtime as per FLSA regulations.

Interested in a Virtual Bookkeeper to Help Your Business?

We offer three bookkeeping packages or you can design your own custom package based on your bookkeeping needs.

Tax-Deductible Expenses: Are You Recording All of Them?

Tax-Deductible Expenses: Are You Recording All of Them?

2017 income tax preparation seems a long way off. Make it easier by tracking all the deductions you can take.

You’ve heard it said before: Tax planning should be a year-round process. It’s so true. Your life will be a lot easier early next year when all your tax forms start rolling in.

Forms like 1099s and W-2s do a lot of the tracking for you. You only need to transfer data over to your IRS tax forms and schedules. But what about the daily stuff, the expenses you incur as a part of your workday that no one else is documenting? There are a lot of tax-deductible costs that can really add up when it’s time to file.

The IRS has two criteria for evaluating the validity of business expenses. First, is it ordinary? Is it something that other companies in your trade or profession would commonly buy? Second, is it necessary? Is it “…helpful and appropriate?”

Warning: Some expenses that you think might be deductible are not. Obviously, you can’t claim the costs of personal items. The IRS specifies two other types of expenses that can’t be deducted: Capital Expenses and those used the calculate the Cost of Goods Sold. Questions? Ask us.

Pulling together all that numbers required for the IRS Schedule C can be challenging. Let us know if you have questions.

Here are some examples of expenses that you might not consider, but which should be recorded as they occur so you don’t forget about them come tax time.

Advertising and promotion

Some of these expenses are obvious. For example, you might report printing costs for brochures, ad space bought, and postage for mailers and other business correspondence. But there’s much more that fits into this category. Think about everything you do that helps promote your business, like expenses related to:

  • Business cards
  • Team sponsorships
  • Your website (including start-up and maintenance fees)
  • Graphic design
  • Workshops/Webinars

Insurance

Do you have any kind of business insurance, like liability or malpractice? Your premiums are deductible.

Car and truck expenses

Understandably, you can only deduct expenses for miles driven for business purposes. If you have a vehicle—either owned or leased—that you also use for personal driving part of the time, you’ll need to track those two separately.

There are two options for calculating business mileage: Actual Expenses and Standard Mileage. To calculate the latter, you’d multiply the number of business miles driven by 53.5 cents for the tax year 2017, then add tolls and parking fees. The Actual Expense method is more complicated; it involves many costs and recognizes depreciation of the vehicle. Check with us if you’re planning to claim expenses for a car or truck, as there are additional rules governing this deduction.

Postage and office supplies

Yes, they’re deductible if you need them for your business.

Meals and entertainment

Familiarize yourself with the rules for this one. They’re complicated, and the IRS looks closely at such deductions.

Business use of your home

Ditto. There are all kinds of regulations, restrictions, and exceptions here, even if you use the simplified method that the IRS introduced a few years ago. Further, the home office deduction can be an audit red flag.

The rules are very specific and very rigid. For example, even if you use your home’s land line for business, you can’t deduct it. Add another line for business, and you can.

Professional and legal fees

If you pay an individual or firm for services provided to help you operate your business, those fees are often deductible. This includes lawyers, accountants, and tax preparers, of course, but as always, there are exceptions. You can’t usually, for example, deduct attorneys’ fees if you were getting legal help to buy business assets.

Dealing with Details

As you can see, there are many allowable business expenses that require meticulous record keeping. You can, of course, do this on paper or in a spreadsheet. There are cloud-based applications specifically designed for this purpose. If you’re interested in checking these out, let us know. We’re always available to help you plan for future tax filings.

Hire a QuickBooks ProAdvisor

To schedule an initial consultation with us, please click the button below.