Salaried Not-Exempt: The Administrative Exemption
One of the most commonly misapplied exemptions from overtime is the Administrative Exemption. In my experience, lots of employers wrongly assume that their employees are exempt from overtime just because they pay them a salary or other non-hourly rate of pay. Overtime is more than just about being paid a salary. As discussed in a previous article, whether an employee is exempt from overtime is more than about a salary level. In fact, there are three tests that an employer must meet in order to classify an employee as overtime exempt:
- Test #1: Salary Level (Currently must receive $455 per week)
- Test #2: Salary Basis (Set pay must be guaranteed and not subject to reductions)
- Test #3: Job Duties (each exemption requires specific job duties; job titles do not control)
In this article, we will focus on the Job Duties (Test #3) for the Administrative Exemption. However, remember that in addition to the specific job duties, in order to be exempt from overtime you must also be paid at least $455 per week (Test #1), and the amount you are paid weekly must be guaranteed and not subject to reduction (Test #3).
Overtime: Job Duties of the Exempt Administrative Employee
There are several criteria that your employer has the burden of establishing before it can cloak you with the administrative exemption from overtime. First, to be exempt from overtime under the administrative exemption, your primary duty must involve the performance of non-manual work that is directly related to the management or general business operations of your employer. Second, your primary duty must include the exercise of discretion and independent judgment with respect to matter of significance.
Your “primary duty” must involve the duties of an exempt administrative employee. The definition of primary duty is the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on the character of the employee’s job as a whole and not based upon an employee’s job title.
When evaluating an employee’s primary duty, factors to consider include relative importance of the exempt duties as compared with other types of duties; amount of time spent performing exempt work; employee’s relative freedom from direct supervision; and relationship between the employee’s salary and wages paid to other employees for the kind of nonexempt work performed by the employee.
Primary Duty must include Non-Manual Work that is directly related to the management or general business operations
First, your job must be non-manual in nature. This usually means that the employee is working inside an office.
Second, your job duties must include managerial job duties that directly relate to the business operations of your employer. The employees work must be directly related to the running or servicing of the business as opposed to “working on a manufacturing production line or selling a product in a retail or service establishment. In other words, exempt administrative work is limited to support or “staff” jobs, as distinguished from “production” or “operations” or “line” jobs.
Primary Duty Must Include Exercise of Discretion and Independent Judgment.
Finally, your 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.
Exempt Administrative Work
In sum, to be overtime exempt as an administrative employee your work must be a high-ranking position, involving discretion (i.e. no oversight) and important to the overall operation of the enterprise. Examples of administratively exempt employees might be administrative assistants for executives of the company (as differentiated from secretaries with fancy titles). Bookkeepers, many “executive secretaries,” loan officers, and most employees who operate machines or devices are not administratively exempt employees.
Do not get confused by the title of the “administrative” exemption; while clerical work may be administrative, it is not exempt. For instance, a secretary may be performing “administrative” work, but their jobs are not usually exempt. Similarly, filing, filling out forms and preparing routine reports, answering telephones, making travel arrangements, working on customer “help desks,” and similar jobs are not likely to be high-level enough to be administratively exempt. It is also true that some primarily clerical workers do in fact exercise some discretion and judgment in their jobs. However, the exercise of judgment and discretion must be about matters of considerable importance to the operation of the enterprise as a whole. Routinely ordering supplies (and even selecting which vendor to buy paper clips from) is not likely to be considered high-level enough to qualify the employee for administratively exempt status. Ultimately, each employee and each position must be evaluated on a position-by-position and company-by-company basis to determine exempt status.
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 online questionnaire and we will get back with you.