Quick-what's the difference between an exempt and a non-exempt employee? It's a tough question, but getting the answer wrong could cost you big money. "We're often contacted by small businesses who should have called us long before they do and now have to pay much more than they should have, either in court or in dealings with state and federal administrative agencies," says Sandy Henderson, president of Human Resource Specialties Inc., a consulting firm in Lake Oswego, Oregon.
"A small business needs professional human resources help virtually from start-up. The better you set up your systems and paperwork at the front end, the more likely you will be able to avoid unpleasant and expensive situations later," adds Henderson. "Good HR can give you the help you need to not step in a mud puddle."
A case in point: our opening question about exempt vs. nonexempt employees. "So many entrepreneurs get this one wrong," says Ethan Winning, a Walnut Creek, California, HR consultant. The bottom line is pay. Nonexempt employees, by law, must be paid for overtime hours, but exempt employees don't have to be-and that's why it's tempting to rename a secretary, say, an administrative assistant and call the position exempt. But a "job title is not a criterion in determining exempt status, although many entrepreneurs think it is."
Exempt employees must manage a function, supervise two or more subordinates, and use independent judgment and discretion in performing their jobs, according to Winning, who cautions that many gray areas are involved. That said, however, few administrative assistants qualify as exempt.
Why is this a big deal? Misclassify an employee as exempt, and, later, if the employee leaves, he or she may march down to the state wage and hour agency to file a claim for hundreds, even thousands of hours in back overtime pay.
The good news: Such goofs and penalties can be sidestepped with just a tiny amount of professional HR help, says Henderson. "HR often is bewildering to nonexperts," she says. "There are federal laws, state laws, and there are also federal, state and sometimes local regulations regarding workplace issues. And there are so many wrinkles. For instance, most states require a business to display posters pertaining to wage and hour issues in the workplace. But how many small businesses know this-or any of the hundreds of other laws that impact them?"