In the last year, the definition of a “salaried” employee has been under a lot of scrutiny. Indeed, many industries, notably restaurants and hotels, have long hidden behind older rules for “exempt” employees – those who were on salary and had the opportunity for bonus pay based on performance and thus exempt from overtime rules. In recent years, though, the definitions are changing and where once industries expected 70 or 80 hour work weeks from exempt employees, court rulings are eroding the traditional definitions of “salary”.
Salaried employees are typically paid by a regular, bi-weekly or monthly paycheck. Salaried employees are often also known as exempt employees, according to the Fair Labor Standards Act (FLSA).
To be considered exempt, you have to make at least $455 per week ($23,600/year), receive a salary, and perform particular duties as defined by FLSA. In addition, some states have enacted overtime laws. In those locations, whichever standard (federal or state) would pay the higher amount applies.
For example, in California, in order to classify a salaried employee as exempt from overtime requirements, large employers must pay the worker at least $49,920 per year. All other employees would automatically be eligible for overtime regardless of job responsibilities. In addition, non-exempt employees must be paid overtime wages equivalent to at least 1.5 times the California minimum wage of $12 per hour (for large employers) or $18.00 per hour.
In New York, as another example, there are salary thresholds that require most employees who earn below a specific amount annually to be paid on an hourly basis and receive overtime pay. The salary threshold varies between New York City, the New York metro area, and the remainder of the state.
This means that many high paying positions do not receive extra wages such as time and one-half for working over 40 hours a week. However, some lower salary positions are still eligible for overtime pay, based on state and federal laws.
On the other hand, hourly employees are typically able to receive time and one-half of their hourly wage for every hour of overtime work.
Also, many salaried employees are considered exempt employees, while most hourly employees are considered nonexempt employees. There are, however, some exceptions to this rule. For example, there are some exempt employees who are not salaried (such as those who receive a fee for a particular job, like a computer technician). There are also some nonexempt employees who are salaried, but their job duties fall under the definition of nonexempt.
The challenge, of course, comes with taxes. Skilled workers may find themselves in between tax brackets year to year and that can make for wide variances in their tax bills. Likewise, salaried, exempt employees may find that longer hours lead to burnout when they don’t realize gains in income for their hard work. One thing is for sure, companies and courtrooms are being forced to redefine exemptions and expectations after scores of years and the effects it may have on entire industries (and their profits) is likely to be far-reaching. If you are involved in this debate, it pays – literally – to stay abreast of how these definitions are changing.
If you or your clients have any tax issues or problems with the IRS/State or other federal tax problems, please feel free to contact me directly at (909) 570-1103 or by email at Carlos@HealthcareTaxadvisor.com
Carlos Samaniego, EA
Enrolled Agent
Licensed by The Department of Treasury to represent taxpayers
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Redlands, CA 92374
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