If you own a closely-held business it is likely that the business has employees for whom it provides compensation in exchange for the employee’s services, products, expertise etc. Two questions we often receive are:
1. How much must I pay my W-2 employees?; and
2. Must I pay my employees overtime?
In addressing these questions, it may be first helpful to review whether the individual in question is an employee or an independent contractor. The guidelines provided for in this article do not apply to independent contractors. Accordingly, guidance to help you answer the question of whether you have an independent contractor or employee can be found here.
The minimum amount which the business must pay its employees is a fairly straightforward question. The State of Iowa minimum wage is currently $7.25/hour and it applies to all employers whose gross annual sales are $300,000 or more. The Fair Labor Standards Act, or “FLSA”, determines the Federal minimum wage. FLSA applies to various business enterprises, but a general rule of application is that it applies to all employers whose gross annual sales are $500,000 or more. The Federal minimum wage is also currently set at $7.25/hour. When both the Federal requirements and state law apply, the law which sets the higher standards must be followed by the employer.
There are some slight exceptions from these laws as they apply to employers in the State of Iowa. For example, if the business employs tipped employees (defined as an employee who makes $30/month or more on tips), then the business can pay the employee as little as $4.35/hour (Iowa) or $2.13/hour (Federal). However, in any given week where the employee’s wages do not average at least $7.25/hour, then the business is required to pay the difference. The State of Iowa also allows for an employer to pay an employee an “initial employment wage” of $6.35/hour for that employee’s first 90 days of employment with your business, and Federal law allows for employees under the age of 20 to be paid as little as $4.25/hour for the same 90 day period. Federal law also allows for a lesser wage to be paid to employees during training.
The State of Iowa does not currently have laws which require an employer to pay overtime to its employees. However, FLSA does provide employers with overtime requirements. FLSA requires that all non-exempt employees are to be paid overtime, when applicable. Covered nonexempt employees must receive overtime pay for hours worked over 40 per workweek (not based upon the amount of hours worked in a particular day, or for work on a particular day of the week). Thus, the question is – which employees are exempt/nonexempt?
An employer does not need to pay an employee overtime wages, or concern itself with minimum wage requirements, if the employee’s employment is accurately classified as (minimum wage and overtime exemptions):
1. Administrative employee. An administrative employee is one who earns at least $455 per week (salary or fee basis) AND has a primary employment duty of performing office/non-manual work related to the management or general business operations.
2. Computer employee. A computer employee is one who earns at least $455/week (salary or fee basis), or $27.63/per hour (or more), AND who has a primary employment duty of computer application, analysis, design, development, testing, creating, and/or modification.
3. Executive employee. An executive employee is one who earns at least $455/week (salary basis only) AND who has a primary employment duty of managing (or managing a department of) the company/enterprise and who directs the work of 2 or more full-time employees and has authority to hire/fire employees.
4. Highly compensated employee. A highly compensated employee is one who earns at least $455/week (salary or fee basis), who has a total annual compensation of at least $100,000, and who has a primary duty including office or non-manual work.
5. Professional employee. The various types of professional employees are:
a. Creative Professional employee. A creative professional employee is one who earns at least $455/week (salary or fee basis) AND who has a primary employment duty of performing work that requires invention, imagination, etc. in a field of artistic or creative endeavor.
b. Learned Professional employee. A learned professional employee is one who earns at least $455/week (salary or fee basis) AND who has a primary employment duty of performing work that requires advanced knowledge in a field of science or learning.
c. Teaching Professional employee. A teaching professional employee is one who has a primary duty of teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge AND who does so in an educational establishment.
6. Outside Sales employee – individual who has a primary employment duty of making sales or obtaining orders or contracts for services/use of facilities AND who regularly performs the primary duty away from the employer’s place of business.
Further, the following classifications of employees are exempt from FLSA overtime requirements (and therefore, in Iowa, all overtime requirements), but are not necessarily exempt from minimum wage requirements (overtime only exemptions):
1. Motor Carrier;
2. Rail Carrier;
3. Railway Labor Act employee;
4. Outside dairy buyer;
6. Local radio/television station employee (announcer, news editor, chief engineer ), dependent upon location surrounding population;
7. Motor vehicle dealership employee (salesman, partsman, mechanic);
8. Watercraft salesman;
9. Driver and driver’s helper for local deliveries;
10. Agricultural water access worker;
11. Livestock auction worker;
12. County elevator worker (no more than 5 employees work at the establishment in such operations);
13. Maple sap worker;
14. Produce worker;
15. Transporter of harvesters;
16. Taxicab driver;
17. Fire protection and law enforcement worker;
18. Domestic service worker;
19. Nonprofit educational institution;
20. Movie theater worker;
21. Forestry of lumbering worker (no more than 8 employees; cruises, surveys, or fell timber, or prepares/transports logs);
22. Amusement or recreational establishment worker (must pay overtime at a rate of time and one-half for all hours worked over 56 in any workweek); and
23. Criminal investigation worker.
Thus, if the employee does not fit into any of the above general or specific job descriptions, then it is likely that such employee is a nonexempt employee, which means that employer must pay the employee an overtime rate of one and one-half times his or her regular rate for all hours worked in a workweek in excess of 40.
As you can see, these wage and overtime guidelines can vary based upon numerous factors, and those variations create the need for a fact-specific analysis. The penalties for the employer’s failure to follow these requirements are considerable, including fines of the employer up to $10,000 per occurrence, as well as criminal prosecution. Accordingly, these determinations are not to be taken lightly by employers.
If you, or someone you know, are in need of legal services regarding employment wage questions, employees, or subcontractors, please feel free to contact the Kreamer Law Firm, P.C. through our website at ww.kreamerlaw.com or by calling (515) 727-0900.