Understanding the classification of employees as either exempt or nonexempt is critical for any business owner—especially in healthcare, where job roles and responsibilities can vary widely. Misclassifying an employee can lead to overtime violations, wage disputes, and costly penalties.
What is the Difference Between Exempt and Nonexempt Employees?
At the heart of this issue is overtime pay eligibility.
- Nonexempt employees are entitled to overtime pay—typically time and a half—for any hours worked beyond 40 in a workweek.
- Exempt employees, on the other hand, are not entitled to overtime.
To determine exemption status, you must look at a number of things, but the most important are the following:
- The type of compensation (salary vs. hourly)
- The job duties performed
Certain roles, such as executives, professionals, and managerial employees, may qualify as exempt—but only if their responsibilities meet specific criteria outlined by the Fair Labor Standards Act (FLSA).
Why Job Duties Matter
It is a common misconception that paying an employee a salary automatically makes them exempt. However, classification depends heavily on job functions. For example, a salaried office manager may still be nonexempt if their role does not meet the legal tests for exemption. Some questions to consider are (1) does the employee manage, supervise or oversee other employees; (2) is the employee permitted to make decisions without seeking approval or permission from the owner; and (3) if the employee does not come into the office, is their salary changed to reflect the lack of hours. Although this is not an exhaustive list, it will get you thinking whether the employee is eligible for overtime pay.
That is why it is essential to thoroughly review employee job descriptions and ensure they align with exemption requirements. Misclassification based on pay structure alone can expose your practice to compliance risks.
Review Employment Contracts and Set Clear Expectations
To avoid misunderstandings, your employment contracts should explicitly state:
- Whether the employee is classified as exempt or nonexempt
- How work hours are tracked
- Whether prior approval is needed for overtime
These details not only help clarify roles internally but also serve as critical documentation if your practice ever faces an audit or legal issue. It also will put the employee on notice regarding their role with the practice, what their responsibilities are and what is required of them as it relates to their job performance and their work hours. The clearer you are in your employment agreements, the more protection you will have in the future.
Get Professional Guidance When in Doubt
Healthcare practices are often fast-paced and ever-evolving, making it easy to overlook details like employment classification. But missteps in this area can be costly. If you are unsure about how to classify an employee or structure compensation, consult with your attorney or CPA. A quick review now could save you from significant problems later.
Final Thoughts
Avoiding overtime pitfalls starts with understanding the differences between exempt and nonexempt employees and ensuring your classifications are correct. Review your employee roles regularly, stay current on labor law updates, and seek guidance when needed.
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