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Understanding Employee Payroll Classifications

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June 9, 2019—Small businesses that do not comply with overtime laws may end up owing employees extra money in overtime, which is something that can easily be avoided. The law is still undergoing changes, but business owners can get ahead of it by being prepared.

Here are a few exemptions that small business owners in the automotive industry should be aware of:


White Collar

The existing white collar exemption will cover most employees that have a managerial or administrative position. This exemption involves a duties test. In order to qualify, this person currently (subject to change) needs to be paid a salary of at least $23, 660 annually.


Commission employee

This exemption applies to employees whose compensation comes primarily from commission on goods and services. In order to qualify, the employee’s regular rate of pay must exceed 150 percent of the applicable minimum wage.


Salesman, partsman and mechanics

This applies to positions that are primarily (more than 50 percent of the time) selling or servicing automobiles within a department that is functionally operated as part of a dealership, whether in the dealership’s principal building or in a physically separate building or area.  Note, this exemption applies to those employed within a dealership only, so independent shop employees will not qualify for this.


Doug Greenhaus, NADA, chief regulatory counsel, environment, health and safety, and Bob Redding, Washington D.C. representative for ASA, share a few tips for small business owners to make sure they’re in compliance.


Pay Attention to duties—not position title.

Remember: It’s all about what they do and not what the position is called, Greenhaus says. Greenhaus gives an example:

“It doesn’t matter what they’re called, it’s what they do,” Greenhaus said. “You can call her a tech, but if she’s in the quick lube lane and she’s just changing oil and tires, she’s not a tech and I need to pay her in a manner where she qualifies for the commission employee exemption—or she’s paid overtime.”

Greenhaus advises dealers to be especially careful with how employees in the quick lube are treated, because the law excludes lubrication and tire changing from the mechanic exemption.  


Stay on top of changes.

Laws are always changing, making it critical for all small businesses to pay attention to changes in the overtime regulations. Both Redding and Greenhaus anticipate new updates and announcements, including a possible change in the salary threshold, coming down the line.

“The trade associations, ASA and others, will publicize it when there’s a final regulation on this,” Redding says.

Redding also suggests looking at the U.S. Department of Labor’s website to see where different amendments and updates are at from time to time.

“This is a big issue,” Redding says. “It is evolving and we’re going to see a final regulation coming.”

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