There are individuals in every workplace in the United States
who are paid a salary and considered exempt from pay for overtime after forty
hours in a work week. The current threshold for exempt status is $23,660. This number will likely increase to $31,000
to $33,000 in the near future. It has
been reported that such a proposed rule could be issued in early 2019.
It is imperative that those employees that you classify as
exempt from overtime pay are truly properly classified. If overtime is common
in your business, the back pay liability could be significant. The liability
period can go back three (3) years. In addition, penalties also include
liquidated (double) damages and attorney’s fees.
How Does an Employee Qualify as Exempt from Overtime?
To be properly classified as exempt, the person must satisfy the
two part, “salary” and “duties”, tests. The person must be paid at or above the
required salary level (currently $455 per week) and the duties of the employee
must fall within one of the so-called “white collar exemptions”. They are
generally referred to as the “executive”, “administrative” and “professional”
exemptions.
Executive Exemption
For the “executive” exemption to apply, the person’s primary
duties must be management of the enterprise or a customarily recognized
department or subdivision thereof. The person must also direct the work of two
or more other employees, and have authority to hire or fire employees or have
particular weight given to his or her recommendations on employee issues. The
most common positions falling under the executive exemption are business owners
or managers, department managers, and supervisors.
Administrative Exemption
The “administrative” exemption is the one most commonly used by
businesses to classify employees as exempt and also the one most frequently
litigated. To qualify, it requires the requisite salary and that the person
perform office or non-manual work directly related to the management of the
business. In addition, the employee must exercise discretion and independent
judgment on significant matters.
The exemption would not apply to an employee responsible for
performing duties that involve clerical or secretarial work. Some of the
well-recognized exempt administrative positions include human resources
personnel, purchasing agents, insurance claim adjusters, office managers,
payroll managers and executive assistants to business owners.
Professional Exemption
In considering who qualifies as an exempt professional employee,
the DOL recognizes four separate categories: “learned professionals”, “artistic
or creative professionals”, “teachers” and employees engaged in the practice of
law or medicine. Most businesses will have few, if any employees who qualify as
a professional. If they do, such as engineers, the basis for exempt status is
usually clear. They will have a college degree or comparable training
qualifying them as a professional in their area of expertise.
Computer Professionals
The DOL also recognizes certain computer professionals as
exempt. The FLSA actually has two separate exemptions for these types of
employees. In addition to an exemption with the same salary level as that of other
categories, $455 per week, there is also an exemption for computer employees
who are paid at least $27.63 per hour. The types of employees that qualify for
these exemptions are computer system analysists, computer programmers, software
engineers and other similarly skilled professional employees.
Outside Sales
The FLSA also provides an exemption for employees engaged in
“outside sales” as opposed to inside sales. This exemption must satisfy both a
duties and a location test. No specific salary amount is required.
Outside sales employees generally work alone, away from the
place of business, have minimal supervision, and normally receive commissions
based on their successful sales rather than hours worked. Inside sales
personnel are generally not exempt unless they qualify for the “executive” or
“administrative” exemptions. These are among the most frequently misclassified
employees.
Final Thoughts on the Overtime Exemption
Employers should be cognizant of workplace morale. Simply
re-designating previously exempt employees as non-exempt to avoid a salary
increase can have serious negative workplace effects. First, it is likely that
some employees will view this as a demotion. Second, previously exempt
employees could lose work schedule flexibility, benefits that are provided only
to exempt employees, and perhaps equally important to many, their perceived
status in the workplace. By carefully considering all these factors, you may be
able to avoid the misclassification challenges that some employers face when an
exempt status is questioned, or a new salary threshold is implemented.
