If you’re a small‑business owner, you’ve probably had at least one moment where you wondered, “Am I classifying my employees correctly?”
And honestly, it’s a fair question. The rules around employee classification under the Fair Labor Standards Act (FLSA) can feel like a maze — especially when you’re juggling payroll, hiring, customers, and everything else that comes with running a business.
But here’s the good news: once you understand the basics, it becomes a whole lot less intimidating. Let’s walk through it together in plain English
First Things First: Why Classification Even Matters
Employee classification isn’t just a paperwork detail. It affects:
- Whether someone gets overtime
- How you track their hours
- What records you need to keep
- Your risk of fines or back pay
Misclassification is one of the most common (and expensive) compliance issues small businesses run into — usually by accident, not intention.
So getting this right protects your business and your employees.
1. Non‑Exempt Employees: The Hourly Heroes
Non‑exempt employees are the folks who must be paid:
- At least minimum wage
- Overtime at time and a half for any hours over 40 in a workweek
These are typically hourly workers, but they can be salaried too — salary alone doesn’t make someone exempt.
Think of non‑exempt as: “If they work extra hours, they get extra pay.”
Most small‑business roles fall into this category.
2. Exempt Employees: The Salary‑Based Specialists
Exempt employees are not entitled to overtime. But — and this is where many small businesses get tripped up — you can’t just decide someone is exempt because they’re salaried.
To be exempt under the FLSA, an employee must meet all three of these tests:
✔ Salary Level Test
They must earn at least the minimum salary threshold set by the FLSA (which can change, and some states have higher thresholds).
✔ Salary Basis Test
They must receive a consistent salary each pay period, regardless of hours worked.
✔ Duties Test
Their job duties must fall into specific categories like:
- Executive
- Administrative
- Professional
- Outside sales
- Certain computer roles
This is where many small businesses accidentally misclassify people — the title doesn’t matter; the actual work does.
Think of exempt as: “Salaried, meets the criteria, and doesn’t get overtime.”
3. Contractors: Great When Used Correctly — Risky When They’re Not
This one’s a biggie. Many small businesses use contractors because it feels easier. No payroll taxes, no benefits, no overtime… what’s not to love?
But here’s the catch: If someone works like an employee, they are an employee — even if you call them a contractor.
Contractors should:
- Control how and when they work
- Use their own tools
- Have multiple clients
- Not be tightly managed like employees
If you’re telling someone when to work, how to work, and what to do every day… they’re probably not a contractor.
The Most Common Misclassification Mistakes (And How to Avoid Them)
Small businesses often slip up because:
- They assume “salary = exempt”
- They promote someone to a supervisor role without checking the duties test
- They pay someone a flat weekly rate but still control their schedule
- They treat contractors like employees
- They don’t track hours for non‑exempt salaried workers
A simple rule of thumb: When in doubt, classify as non‑exempt. It’s safer and often more accurate.
How to Make Classification Easier (Without Becoming a Legal Expert)
You don’t need to memorize the entire FLSA. You just need a few simple habits:
- Review job duties annually
- Keep job descriptions updated
- Track hours for anyone non‑exempt
- Double‑check salary thresholds each year
- Document your classification decisions
A little structure goes a long way.
How an GuidePoint HR Can Help You Stay Compliant
If classification feels confusing, you’re not alone. It’s one of the top areas where small businesses ask for help — and for good reason.
I help small businesses:
- Review roles for proper classification
- Update job descriptions
- Build simple systems for tracking hours
- Train managers on overtime rules
- Reduce the risk of costly misclassification mistakes
No legal jargon. No overwhelm. Just clarity and confidence.
Want to Make Sure Your Employees Are Classified Correctly?
If you’re unsure whether your team is properly classified, let’s talk. I offer a free 20‑minute HR consultation where we can walk through your roles and identify any potential risks.
A quick conversation now can save you a lot of stress later.
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