FLSA Misclassification: Hourly-Exempt Employees

FLSA Misclassification- Does your company classify some employees as “hourly exempt?” That is, are some of your employees paid an hourly rate of pay for all hours worked, yet do not get paid overtime for hours worked in excess of forty (40) per workweek? If so, your company should take a long, hard look at whether those employees are classified correctly.

The “hourly-exempt” category is a combination of a few different overtime exemptions under the Fair Labor Standards Act (“FLSA”). Most employers understand that professional positons such as doctors, lawyers, business owners, and teachers may be paid on an hourly basis and not be paid overtime for the extra hours they work. The most common mistake comes within another recognized FLSA exemption: the computer employee exemption.

Under the FLSA’s computer employee exemption, a “computer employee” can be paid either on a salary basis or on an hourly basis and be exempt from overtime. But problems often arise because employers assume, incorrectly, that any employee who uses, repairs, or needs computer software to perform their job qualifies for this exemption. In truth, the computer employee exemption is quite narrowly defined by the FLSA, and the U.S. Department of Labor frequently catches employers in misclassification errors during audits or complaint investigations. To qualify for the exemption, all of the following criteria must be met:

  • The employee must be compensated either on a salary or fee basis at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour ($41.00 per hour for California employees);
  • The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;
  •  The employee’s primary duty must consist of:
  1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
  2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  4. A combination of the aforementioned duties, the performance of which requires the same level of skills.

The computer employee exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment. Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters and others skilled in computer aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified in the primary duties test described above, are also not exempt under the computer employee exemption.

More information on the FLSA’s computer employee exemption can be found here: http://www.dol.gov/whd/overtime/fs17e_computer.pdf. Learn more about C2’s Federal Regulation services.