Salaries Legally Too Low

“I’m always a bit confused about how much I must pay my salaried employees but my lowest paid is currently earning $56,000.”

Your HR Survival Tip

As an employer, we understand certain things are not completely at our discretion due to the employment laws. Laws dictate who is paid a salary and how much that salary must be before you have any choices.

Who is eligible to be paid a salary is never the employee’s choice. The company takes full responsibility for ensuring the position meets one of the legal exemptions that allow the position to be exempt. Exempt is the legal term for a position that is exempt from overtime and it is often called a salaried position. If the company misclassifies the position as exempt and the state disagrees, the company is the only one held responsible for paying the fines, penalties, and unpaid any premiums (missed meal and rest breaks, overtime).

The minimum amount of any salary paid is also determined by the state. It changes every time the state minimum wage changes. The calculation is 2 times the state minimum wage times 2080. The 2080 is considered full-time hours over a year. So it’s double the state minimum wage and multiplied by full-time hours. For example, if the state minimum wage was $18/hour, the calculation would be $18/hour x 2 = $36/hour x 2080 (full-time equivalent) = $74,880/year as the minimum salary allowed.

The salary paid cannot be less than the full-time equivalent, regardless of how few hours the salaried employee might work. If the calculation results in a $74,880 minimum salary, you must pay $74,880/year even if they only work 5 hours per week. If you pay less, the position automatically loses the exemption for a salary and becomes an hourly position.

What happens if you have been paying less than the minimum salary? That position must legally be reclassified as hourly from the day you neglected to pay the correct salary. You lost the exemption to qualify as salaried that day and it cannot be applied retroactively. Regardless of title, it has been an hourly position from that day.

You need to look back at the period of time worked and prepare a check to the employee. Since that whole period is now considered hourly, you have unpaid wages for all overtime worked, plus premiums due for missed meal and/or rest breaks (max of 2 hours per day). If you have no records, you must take the employee’s word for any overtime hours and missed or late meal breaks and pay them accordingly. Yes, you actually need to ask them to provide you with a list of the overtime hours and missed breaks for that period.

Once you have paid the employee and are now confident you are up-to-date, take a new look at the position to determine if this position is eligible to be exempt (salaried). Confirm the duties test is met for the exemption you have chosen for this position and you will pay more than the minimum salary required by that exemption. In that case, you can consider moving this position to a salary going forward… but you can’t back-date the effective date.

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