Exempt vs. Nonexempt

Most jobs are governed by the Fair Labor Standards Act (FLSA), but some are not. If the work in question is governed by the FLSA, your company's tax liabilities and your worker's tax requirements as well may be impacted. A determination that your workers should have been paid overtime when you had them misclassified as exempt workers may indicate non-payment of taxes that should have been collected and paid to the IRS.

The question of whether a worker is exempt or nonexempt is a matter of whether a worker should be salaried or paid by the hour. A worker paid by the hour is eligible to receive overtime pay, which would be taxed like all income. Failure to pay overtime, meaning underpayment of workers and underpayment of taxes on the additional pay they should have received, may factor into an employment tax audit of your company by the IRS.

Among other criteria used to judge whether an employee should be classified as exempt or nonexempt according to the FLSA are the following:

  • Salary level test: Pay of less than $23,000 a year indicates that a worker is nonexempt. Pay of more than $100,000 a year reflects exempt status.
  • Job duties test: An employee can be called nonexempt when he or she does not perform exempt job duties. A job title such as "manager" or "administrative assistant" does not guarantee that an employee is exempt unless that employee actually performs managerial or administrative duties. Executive job duties, including supervision of employees, or management as a primary duty and input into the job status of other employees, are an indication of exempt status. Lack of such duties may indicate that an employee should be nonexempt. Likewise, administrative job duties, including non-manual, significant work directly related to management or general business operations requiring exercise of independent judgment, are an indication of exempt status. Lack of such duties may indicate nonexempt status.

Brown, PC, offers companies advice and representation in cases involving questions of whether employees were misclassified as exempt or nonexempt workers for taxation purposes. Contact attorney Lawrence Brown to discuss your IRS employment tax audit or any other situation where exempt versus nonexempt status is at issue.

Former Trial Lawyer for the Department of Justice Tax Division

Lawrence Brown gained important insights as a former trial lawyer for the Department of Justice Tax Division. He brings more than 20 years of experience to every case. He may recommend use of a panel of tax experts such as CPAs, auditors and former IRS agents to formulate and execute a strategy in your legal matter. Brown, PC, can aggressively counter the IRS when your company's financial integrity is on the line over the issue of exempt versus nonexempt status of your workers stands to affect tax liability.

Brown, PC, serves individuals and businesses in the Dallas-Ft. Worth Metroplex, statewide in Texas, and nationwide. Contact Lawrence Brown at 888-870-0025 to arrange a confidential consultation. Discuss your impending IRS audit or appeal, issues regarding exempt vs. non-exempt workers or questions about any type of tax exemption. Attorney Lawrence Brown can advise you on the most expedient way to prevent or resolve disputes that your business faces with the IRS.

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