Are My Employees Properly Classified?

By Associate Attorney Ashley N. Bonomini

Employee classification and compensation are two areas where a seemingly small payroll decision can turn into a much bigger—and much more expensive—problem for a business. Paying a salary or allowing employees to receive tips does not necessarily determine how the law treats that worker. For North Carolina employers, understanding the basic rules can help avoid unpaid wage claims, penalties, and costly litigation.

One company could learn a very expensive lesson from such a misclassification. A class action lawsuit was recently filed against Restaurant Services of the Outer Banks, LLC, a company operating over 50 Dunkin’ Donuts and Baskin-Robbins locations in North Carolina and Virginia. The suit alleges that the franchisee improperly classified their store managers and failed to pay them overtime wages where they should have, resulting in potentially millions of unpaid wages owed to employees. This provides a timely reminder for employers to take a closer look at how their employees are classified and paid.

One of the most common wage-and-hour mistakes is assuming that a manager—or anyone receiving a salary—is automatically exempt from overtime. Under the federal Fair Labor Standards Act (“FLSA”), most employees must receive at least the applicable minimum wage and overtime compensation at one-and-one-half times their regular rate for hours worked over 40 in a workweek unless an exemption applies.

While payment on a salary basis is a requirement for many exemptions, salary alone is generally not enough. The employee must also satisfy the requirements of a particular exemption, which may include specific job-duty requirements. For example, if your “manager” spends most of the day performing the same work as hourly employees and has limited actual management authority, it may be time to take another look at that classification. The job duties are key.

North Carolina businesses must also consider the North Carolina Wage and Hour Act (“NCWHA”), which regulates issues such as payment of promised wages, deductions from wages, and notification of employees regarding their wages and employment practices.

In addition to federal minimum-wage and overtime requirements, North Carolina law addresses issues such as promised wages, commissions and bonuses, payroll deductions, and notice to employees about compensation practices. Employers should pay particular attention if they have these compensation arrangements, and their written policies should clearly explain when compensation is earned, when it will be paid, and what happens to outstanding compensation when employment ends.

Classification and wage issues are often easier—and considerably less expensive—to address before a dispute arises. For North Carolina employers, a periodic wage-and-hour checkup can help identify problems before they turn into litigation.

The attorneys at Jesson & Rains, PLLC can help North Carolina businesses review employee classifications, compensation practices, employment agreements, and workplace policies so you can spend less time worrying about payroll problems and more time running your business.