Overused Overtime Exemptions
Employers often attempt to illegally cloak their employees with overtime exemptions to avoid paying overtime in accordance with federal law. The most common overtime exemptions used by employers are the Executive Exemption and Administrative Exemption. This article will give a broad overview of the Executive Exemption and Administrative Exemptions from overtime. A more in depth look at the executive and administrative exemptions will be discussed in a follow up article.
A Fair Day’s Pay for a Fair Day’s Work
When it comes to paying overtime employees and employers, alike, are uncertain as to who, how, or when to pay overtime. In fact, wage and overtime lawsuits have been on the rise in recent years. Given the large volume of wage and overtime related lawsuits that are filed each year, it is safe to say that you should not assume that you are not entitled to overtime just because your employer calls you exempt or fails to pay you overtime.
An employee’s entitlement to be paid overtime can be found in a federal act called the Fair Labor Standards Act – a law that has been on the books since 1938. The FLSA was enacted after the great recession to ensure working class America received a fair day’s pay for a fair day’s work. In today’s economy, with more and more of the wealth being concentrated among fewer and fewer people, it is more important than ever to ensure that working class America stands up and fights for a fair day’s pay for a fair day’s work – while far from perfect, the FLSA arms employees with a strong avenue to assert their rights to be paid overtime.
The FLSA is an Employee Protection Act and generally employees are presumed not exempt from overtime, but instead entitled to overtime pay. The law requires employees to be paid for overtime hours at a rate of one and one half (1 ½) times their regular rate, unless the employee is exempt. However, if an employer wishes to cloak an employee with an exemption from overtime – meaning an employer elects not to pay an employee overtime – the employer has the burden of showing its entitlement to the exemption. Two common exemptions from overtime are the executive exemption and administrative exemption.
Overtime Exemption: More than Just a Salary Level
An employee’s entitlement to overtime pay is more than just a salary level or the fact that an employee is paid a day rate, per job rate, or another piecemeal rate. In other words, just because an employee is paid a salary does not mean the employee is not entitled to overtime pay. To take advantage of the executive or administrative exemptions it is the employer’s burden to prove and to meet each of the three defined tests below.
Test 1: Salary Level
First, in order to be exempt, the employee must be paid at least $455 per week or $910 biweekly or $1971.66 monthly or $23,660 annually. These amounts are actual payments and salary should not be pro-rated for part-time employees. This is the salary threshold as of the writing of this article (October 31, 2017). Last year, the Department of Labor was set to increase this salary level, but those regulations were knocked down. However, the DOL is currently proposing new regulations to once again, increase the salary level.
Again, this is only step one of a three-part test, do not assume you are exempt just because you are paid a salary, day rate, or other set amount of pay that equals the salary level of $455 per week.
Test 2: Salary Basis
Next, if the employee is paid at least $455 per week, the employee must also receive a predetermined, fixed salary that is not subject to reduction due to variations in quality or quantity of work performed (except for some very narrow specified circumstances). Here, it is not enough that the employee received $455 per week; the employee must be guaranteed $455 per week, regardless of the number of hours worked. This sum must be predetermined and cannot be subject to variation, but must be a set amount.
Test 3: Job Duties (this is where employers often get it wrong)
Finally, if the employee is paid at least $455 per week on a salary basis, the employee must also meet the job duties test. In order to be exempt, the employee must meet the job duties requirement of the specific exemption, of which, the executive and administrative exemptions will be briefly outlined below. A more in depth look at the executive and administrative exemptions will be discussed in a follow up article.
Executive Exemption Job Duties
In order for an employee to be considered exempt as an executive, the employee’s job duties must meet the following three criteria:
- Primary duty: the employee’s primary duty is managing the enterprise, or managing a recognized department or subdivision. In order to be “Managing” an employee’s activities should include duties such as:
- Interviewing, selecting, training and disciplining employees
- Setting and adjusting pay and work hours
- Planning and apportioning work among employees
- Determining the techniques to be used to complete a job or conduct business;
- Determining merchandise to be bought, stocked and sold, including which merchandise and amounts;
- Planning and controlling the company’s budget
- Monitoring or implementing legal compliance measures
- Supervise 2+ Employees. The employee must also customarily and regularly direct the work of at least two or more full-time employees
- Power to Hire or Fire. The employee must also have the authority to hire or fire other employees, or the employee’s recommendations as to hiring, firing, advancement, promotion or any other change of status of other employees are given a particular weight.
- Generally, an executive’s recommendations must pertain to employees whom the executive customarily and regularly directs. It does not include occasional suggestions.
Again, it is the employer’s burden to show that the employee is exempt as an executive employee. If the employer cannot satisfy its burden, then the employee is entitled to overtime. A more in depth look at the executive exemption from overtime will be posted in a follow up article.
Administrative Exemption Job Duties
In order for an employee to be considered exempt as an administrative employee, the employee’s job duties must meet the following two criteria:
- Primary duty: The employee’s primary duty must be performing office or non-manual work directly related to management or general business operations of the employer’s business. The work performed must be directly related to assisting with the running or servicing of the business and does not include working on a manufacturing production line or selling a product in a retail or service establishment.
- Exercise of Discretion and Independent Judgment. The employee’s primary duty must also include exercising discretion and independent judgment with respect to matters of significance and implies that the employee has authority to make an independent choice, free from immediate direction or supervision. This involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. The following are some examples of job duties that meet the discretion and independent criteria of the administrative exemption:
- Authority to formulate, affect, interpret, or implement management policies or operating practices;
- Carry out major assignments in conducting the operations of the business;
- Performs work that affects business operations to a substantial degree;
- Authority to commit the employer in matters that have significant financial impact;
- Authority to waive or deviate from established policies and procedures without prior approval;
- Authority to negotiate and bind the company on significant matters;
- Providing expert advice to management;
- Investigating and resolving matters of significance on behalf of management
- Representing the company in handling complaints or arbitrating disputes
Specifically, however, discretion and independent judgment does not include:
- Applying well-established techniques, procedures or specific standards described in manuals or other sources
- Clerical or secretarial work
- Recording or tabulating data
Performing mechanical, repetitive, recurrent or routine work
Again, it is the employer’s burden to show that the employee is exempt as an administrative employee. If the employer cannot satisfy its burden, then the employee is entitled to overtime. A more in depth look at the administrative exemption from overtime will be posted in a follow up article.
Conclude: Exempt or Not Exempt from Overtime?
Ultimately, whether an employee is entitled to overtime is a technical, legal question for which your employer has the burden of proving. Do not assume your employer is correct in telling you that you are not entitled to overtime: employers are frequently wrong.
If you have questions about your entitlement to overtime, including any specific questions about the administrative or executive exemptions, contact the wage and overtime lawyers at Herrmann Law 817-479-9229 or fill out our questionnaire and we will get back with you.