August 30, 2022
by Kiley VanGilder
Building your organization structure requires strategy around employee classification. Understanding exactly what employee classification means, on a higher level than just part-time and full-time employment will help you and your company create a thoughtful hiring plan that is both compliant and intentional.
The Basics
So what exactly is part-time, full-time, hourly, exempt, non-exempt, salaried, and all those FUN classification mumbo jumbo words? So glad you asked!
Let’s define the words that have very clear meanings and then take a dive into the not-so-clearly-defined classifications.
Exempt:
An individual who is exempt from the overtime provisions of the Fair Labor Standards Act (FLSA) because the individual is classified as an executive, professional, administrative or outside sales employee, and meets the specific criteria for the exemption. With some limited exceptions, exempt employees must be paid on a salary basis.
Nonexempt:
an individual who is not exempt from the overtime provisions of The Fair Labor Standards Act (FSLA) and is therefore entitled to overtime pay for all hours worked beyond 40 in a workweek (as well as any state overtime provisions).
Salaried:
An individual who receives the same salary from week-to-week regardless of how many hours are worked. Exempt employees must be paid on a salary basis, as discussed above. Nonexempt employees may be paid on a salary basis for a fixed number of hours or under the fluctuating workweek method. Salaried nonexempt employees must still receive overtime in accordance with federal and state laws.
Hourly:
An individual who receives an hourly wage for work performed. Generally, such individuals, because of the method of payment, are classified as nonexempt and are subject to the overtime provisions of the FLSA.
Classifying Employees MUST Be Done Correctly
The classifications we are all familiar with are part-time and full-time employment, though the definition is not exactly cut and dry. The federal government does not define part-time employment. Full-time employment is defined by both the IRS and the Affordable Care Act as any employee working 30 or more hours per week, or 130 hours or more per month IF your company is considered an Applicable Large Employer (ALE) by the IRS. Many small businesses are not ALEs because you must employ at least 50 employees.
If your company is not an ALE, you may be thinking ok so then what employee classification DOES apply to my small business? To that we say… there is so much flexibility for small businesses employing under 50 employees. Regardless of that flexibility, employers should have an employment classification policy that is consistent throughout the organization and fair to both the company and employees. Since the FLSA sets 40 hours as the maximum number of hours worked before employers must pay overtime pay to nonexempt employees, most organizations set full-time employment at or below 40 hours per week. When you build out your company policies, there are things to consider when deciding how you will classify your team.
Although full-time and part-time employee classification are up to the employer to decide on internally, exempt and non-exempt classifications are governed by the FSLA, which minimum wage and rules for overtime pay are upheld, regardless of what you think full time should be.
Preventing Lawsuits
Correct classification is one of those compliance pieces that rears its ugly head if your employees feel like they aren’t given the same treatment as someone else, and if you can’t prove you are on the up and up through explicit qualifiers and documentation. AKA an accurate employee handbook and subsequent internal procedures.
Employers must be cognizant of legally mandated benefits required by both state and federal law such as workers’ compensation, unemployment compensation, insurance, and other equally important benefits that are not controlled by the employers’ classification of employment.
The Inside Scoop
After working with 50+ businesses to set up personalized policy and plan organizational structures – we’ve seen it all. From what we’ve seen from our clients and our own internal values, small business owners are trying their best to break the corporate chains and give more work-life balance to employees. Generally speaking, we see small business owners defining full-time employment in their companies starting at 30 hours up to 40 hours.
Not all companies have the capacity or budget to offer full-time employment benefits to employees who work 30 hours a week, and that is A-OKAY! A company asking someone to work 40 hours is still a very realistic expectation, especially whne you are clear about their jobs, and committed to creating a work environment that makes work enjoyable and challenging.
If you’re in this boat know you are not alone, and there are still other ways to create great work-life balance for our full-time, 40 hour a week, employees. Check out this article to get some great small-but-mighty alternative perks and benefits to offer your team!
Strategic Classification
Defining employee classification means taking a long, strategic look into your company and determining what makes the most sense now, short-term, and even long-term.
But heres a secret we’ll share with you… organizational planning is our speciality! Learn how we can help you build your dream team in a strategic, compliant, and affordable way today!
