Wage and Hour Compliance
Wage and hour compliance often comes down to a single question (that your payroll software cannot make for you): is each employee exempt or non-exempt under the Fair Labor Standards Act? How you pay someone doesn’t answer that question. An employee on a flat salary can still be owed overtime, and a large share of the wage claims filed against small businesses trace back to a salaried worker who was assumed to be exempt and worked well past 40 hours a week for years before anyone checked.
The work of staying compliant is, believe it or not, classification work, hour tracking, and recordkeeping. And it should be done on a schedule rather than in response to a complaint. Test every position against the salary basis, salary level, and duties requirements, track hours for every non-exempt employee no matter how they are paid, pay for all the time you know about or should know about, and keep the records long enough to prove it.
It requires you to pay at least the federal minimum wage for every hour worked and one and a half times the regular rate for every hour over 40 in a workweek, to every employee who is not properly exempt. Whether you cut that person a salary or an hourly check has no bearing on the obligation.
Alabama has no state minimum wage law and no state overtime law, so federal rules are the whole rulebook for Wiregrass employers. That means $7.25 an hour as the floor and 40 hours as the overtime trigger. It also means the workweek matters more than the pay period. A workweek is a fixed, recurring period of 168 consecutive hours, and overtime is calculated inside it. You cannot average a 50-hour week against a 30-hour week in the same biweekly pay run and call it even, which is one of the more common errors we see in businesses that switched to biweekly payroll without changing how they calculate overtime.
An employee is exempt only when all three tests are satisfied, and failing any one of them makes the employee non-exempt regardless of the other two.
The duties test is where most classifications fall apart, because it turns on what the person really does rather than what the job description or the title says. An assistant manager who spends most of the week running a register and stocking shelves is not performing exempt executive duties, no matter how the offer letter reads.
Because paying a salary feels like an answer, so nobody goes back and asks the question. Office managers, shift supervisors, bookkeepers, dispatchers, and lead technicians end up on salary for practical reasons, and the exemption analysis never happens.
There is a second failure mode that catches employers who did classify correctly. Docking an exempt employee's pay for a partial-day absence, a slow week, or a disciplinary issue outside the narrow permitted reasons can break the salary basis, and losing it can strip the exemption from every employee in that job classification, not just the one whose check you adjusted. The savings from a single deduction rarely survive contact with the resulting back pay calculation.
All of it, including work you did not ask for, if you knew about it or reasonably should have. This is the standard that surprises owners most, because it puts the burden on the employer to control the work rather than on the employee to report it honestly.
Overtime is also calculated on the regular rate, not the base rate, and the regular rate includes non-discretionary bonuses, shift differentials, and most incentive pay. A production bonus paid quarterly has to be allocated back across the weeks it covers and the overtime recalculated. That step gets skipped constantly, and it is one of the first things a Wage and Hour investigator looks for.
For every non-exempt employee, you need identifying information, the hours worked each day and the total for each workweek, the regular hourly rate, straight-time and overtime earnings, additions to and deductions from wages, total wages per pay period, and the pay date. Payroll records are kept for three years, and the records used to compute wages, including time cards and work schedules, are kept for two.
The reason to be strict about this is not the recordkeeping penalty. It is that when an employer has no reliable time records, courts have long allowed the employee's reasonable estimate of hours worked to carry the day, and the employer is left arguing against a recollection with nothing on paper. Good records are the employer's defense, not the employee's.
Start with a list of every salaried employee and spend one week writing down what each of them actually does, then compare that record against the duties tests rather than against the job description. Three practical steps make the audit useful instead of ceremonial.
When the audit turns up a misclassification, correct it going forward first and get counsel involved before deciding how to handle back wages. Reclassifying quietly and hoping the question never comes up tends to make the eventual exposure larger rather than smaller.
The safest habit is to treat exempt status as a decision with an expiration date. Re-run the analysis whenever a job's responsibilities change, whenever someone is promoted, and once a year for everyone.
If reading through the duties tests raised a question about even one position on your payroll, that question is worth settling now rather than after a complaint arrives. Our HR and payroll team reviews classifications, pay practices, and time records for Alabama employers as an ongoing part of the relationship, not as a one-time project you have to budget for separately. Get in touch with the PRemployer team and we will walk your payroll list with you.
Get in touch with the PRemployer teamYes. Salary is a pay method, not an exemption. A salaried employee who does not meet the salary level and duties tests is non-exempt and is owed overtime for hours worked past 40 in a workweek, calculated on the regular rate derived from that salary.
No. Alabama has neither a state minimum wage nor a state overtime statute, so employers follow the federal Fair Labor Standards Act. That simplifies the analysis, though it also means there is no state agency guidance to fall back on when a classification is close.
Private-sector employers cannot. Compensatory time in place of overtime pay is available to public agencies under specific conditions. A private business owes the overtime in cash in the pay period the hours were worked. And, even in cases where employees don’t expect to be paid for overtime, the employer still owes it.
Good faith limits the damage but does not eliminate it. Employers generally face back wages for two years, extended to three for willful violations, and liquidated damages equal to the back pay amount unless the employer can show the misclassification was made in good faith with reasonable grounds.
Once a year at minimum, and any time a role changes materially. Promotions, restructures, and the quiet accumulation of new duties are what move a job across the exempt line without anyone deciding to move it.