A Salaried Assistant Manager, a 1099 "Consultant," and a Bounced Deposit
Bramble Bakery & Café has 11 employees and runs payroll through QuickBooks Online Payroll. Dana, the assistant manager, is paid a $52,000 salary and classified as exempt. She routinely works 50 hours a week, opens and closes the shop, and spends roughly 70% of her time working the line next to hourly staff. Marcus is paid $2,400 a month on a 1099-NEC; he works Monday through Friday, 8 to 4, in the shop, uses the café's ovens and a POS login, and has done so for 14 months. Separately, an employee's $1,876.20 net direct deposit was reversed by the bank two days after payday because the account number was wrong. Next payday is Friday.
1. Assess Dana's exempt classification against the salary-basis and duties tests. If she is non-exempt, estimate the weekly and annual overtime exposure and show the calculation.
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Salary basis: met - she is paid a predetermined, fixed amount regardless of hours.
Duties test: this is where the classification is fragile. Exemption generally requires that the employee's primary duty be management of the enterprise or a recognized department, with real authority over hiring, firing, or recommendations given particular weight. Spending about 70% of her time on production work beside hourly staff points the other way. Opening and closing the shop is not, by itself, management. Treat this classification as at risk, not as a settled fact, and put the concern in writing to the owner.
Exposure if she is non-exempt:
- Regular rate: $52,000 ÷ 2,080 hours = $25.00/hour
- Overtime hours: 50 − 40 = 10 per week
- Standard salaried-non-exempt treatment (salary covers straight time for all hours worked): half-time premium only = 10 × $25.00 × 0.5 = $125.00/week, about $6,500/year
- If the salary was intended to compensate only 40 hours: full time-and-a-half = 10 × $25.00 × 1.5 = $375.00/week, about $19,500/year
Add the lookback period (commonly two years, three if the violation is found willful), plus possible liquidated damages and penalties - so the realistic number is a multiple of the annual figure, not the annual figure itself.
The fix is prospective and structural: either genuinely rebuild the role so management is the primary duty, or convert her to hourly (or a fluctuating-workweek method) and pay the premium going forward. Do not simply hand her a bigger salary and call it exempt.
2. Assess Marcus's worker classification and describe the remediation path and the exposure the owner is facing.
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Indicators pointing to employee:
- Behavioral control - fixed 8-to-4 schedule, work performed on the café's premises, work directed by the owner.
- Financial control - the café supplies the ovens and a POS login; Marcus has no investment, no tools of his own, and no ability to profit or lose on the arrangement; he is paid a flat monthly amount.
- Relationship - 14 months and counting, work that is integral to the business, no other clients evident, no written contract describing a project with an end date.
No single factor decides it, but on these facts the classification looks unsupportable. A worker is not a contractor because the parties agreed to call him one, and a 1099-NEC does not create the status.
Exposure over 14 months:
- Employer FICA: 7.65% × ($2,400 × 14 = $33,600) ≈ $2,570, half of which would have come out of Marcus's pay
- FUTA and state unemployment tax, at whatever the experience rate is
- Workers' compensation coverage gaps
- Interest and penalties on late deposits and late filings, plus a possible assessment for the income tax withholding that was never collected
Remediation: stop issuing 1099-NECs immediately and put him on payroll going forward. The historical period is a decision for the owner with a tax professional - there are voluntary classification routes that cap the back liability, and there are retroactive W-2 corrections, and the choice between them depends on facts you do not have. Your job is to quantify, document, and escalate; not to decide. Put the analysis in an email so the advice and the owner's decision are both dated.
3. The reversed direct deposit: what do you record, what do you pay and when, and what is the communication step?
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What not to do: do not reverse the original payroll run. Wages were earned and paid; the tax withholdings and employer taxes were calculated and remitted on that check and must stay tied to that check date. Do not "fix" it by netting $1,876.20 out of Friday's paycheck either - that is an unauthorized deduction from wages, and state wage law usually requires written consent and, in some states, a specific form.
Record: the reversal is its own transaction. Dr Checking 1,876.20 / Cr Payroll Clearing (or Net Pay Payable) 1,876.20 when the bank pulls the funds back, then reverse it when you reissue: Dr Payroll Clearing 1,876.20 / Cr Checking 1,876.20. Confirm in the payroll liability account that the tax remittance actually funded - a reversal timed two days after payday can strand an ACH debit.
Pay: reissue the net pay as soon as correct banking details are confirmed, ideally as a same-week off-cycle payment rather than waiting for Friday. The employee should not finance the employer's data-entry error for a pay period. If you wait, get the employee's written agreement to the date.
Communicate: tell the employee the same day, in writing - what happened, that it was not their error, exactly what will be paid and when. Collect corrected account details through the payroll portal or a secure channel, never as a full account number pasted into ordinary email. Note the cause in the payroll file so the next run does not repeat it.