Avoiding litigation resulting from time and attendance policies should not be a complicated process. However, businesses must make careful considerations when classifying workers as exempt or nonexempt, and that means understanding federal regulations. In addition, maintaining a clear system for employee management and tracking is essential.

The first step in classifying an employee is implementing a consistent compensation arrangement. If a worker is paid a salary and the company aims to define him or her as exempt from overtime payment, the employee's annual salary must be above $23,660, according to Smart Business. The type of work an employee performs also affects how workers should be classified. As a general rule, most executives are exempt from overtime wages, and administrative workers - but not those conducting clerical work - performing tasks that directly influence the management of the business can be exempt as well. The process can be confusing, requiring dedicated staff to determine employees' statuses.

Moreover, there are complications when calculating overtime after a worker is classified as non-exempt. The Department of Labor states that all non-discretionary pay that an employee earns during the workweek, such as sales bonuses, must be included when calculating overtime wages. It is equally important to note that overtime wages cannot legally be waived in an agreement between an employer and employee.

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