Employers often find themselves in murky water when it comes to classifying their white-collar employees as either exempt or non-exempt from overtime.
The U.S. Department of Labor’s Wage and Hour Division is charged with enforcement of the overtime provisions of the Fair Labor Standards Act (FLSA).
What’s the big deal? If you are found to be in violation of the overtime provisions, you not only will be required to pay the overtime wages due, you likely will be required to pay liquidated damages (double the wages under the Fair Labor Standards Act (FLSA)). Pennsylvania, likewise, has overtime requirements and a liquidated damages provision. Additionally, employers will be required to pay attorney fees and costs.
Employees who are non-exempt from overtime are required to receive time and one-half their regularly hourly rate for each and every hour worked over forty hours in a single workweek. Note that I said they are “required to receive.” Employees cannot waive their right to receive overtime pay! Nor can employers pay “comp time” in lieu of wages, no matter what the two of you want or agree on.
Who is “non-exempt”? Any employee for whom there is no exemption under the FLSA. However, like many other laws Wage and Hour enforces, who is and who is not exempt or non-exempt is a question of fact, specific to each case.
The most frequently looked at white-collar exemptions are the executive, administrative and professional exemptions.
In order to qualify under the executive exemption, the employee must receive no less than $455 per week in salary. The employee’s primary duties are the management of the enterprise or a department. The employee must customarily and regularly direct the work of two or more full-time employees. Finally, the employee must hire and/or fire, OR, be in a position whereby his/her suggestions to hire and/or fire carry particular weight. Often, too, Wage and Hour will look at the relationship between wages paid to the claimed “executive” versus non-executive employees within the organization.
So, if you have a receptionist you pay $10 an hour, and you decide to give him/her a title of Executive Vice President of Communications (“VP of C”), that doesn’t make the receptionist exempt from overtime (title doesn’t matter!). Let’s then say the VP of C is said to be “in charge of” two other clerical staff; one earning $10 per hour, like our VP of C, and the other earning $8 per hour. Wage and Hour would more likely than not dig deeper to see if the VP of C really, truly “managed” communications and was in-charge of the other two people, based on the rates of pay being so close. A true manager is likely making a good percentage more than his/her subordinates. But let’s just say our VP of C legitimately was really in charge of a department and had people working for him/her, whom she could fire (or suggest they be fired). Our VP of C still would not qualify as a bona fide executive for purposes of the FLSA overtime exemption, because our VP of C is paid on an hourly basis! Employees must be paid on a pre-determined salaried basis in order to qualify for the executive exemption.
The administrative exemption, likewise, requires a weekly salary of not less than $455 per week. An employer claiming an employee meets the administrative exemption must be able to prove that the employee’s primary duties are the performance of non-manual work which is directly related to the management or business operations of the employer, or the employer’s customers. The employee’s primary duties must also include the exercise of discretion and independent judgment with respect to matters of significance.
Once again, the analysis is very fact specific. “Title” and what the two of you agree on are irrelevant to the analysis.
Finally, the professional exemption, as you can probably guess, requires that the employee be paid on a salaried basis of not less than $455 per week. The professional’s primary duty is the performance of work requiring knowledge of an advanced type in a field of science or learning, customarily acquired in a prolonged course of specialized intellectual instruction. Courts have ruled that if the professional is not college educated, then the professional has not acquired “knowledge of an advanced type” and therefore, is not exempt under this basis.
Employers are cautioned that they can destroy their exemption by impermissibly deducting from an employee’s pay, thereby converting the salary status to hourly. If that occurs, your exempt employee is no longer exempt – for that workweek, at least.
Fact Sheet 17A: Exemption for Executive, Administrative, Professional, Computer and Outside Sales Employees Under the Fair Labor Standards Act (FLSA), United States Department of Labor, Wage and Hour Division.
There are other exemptions that may apply to you or your employees, and don’t forget, each situation is looked at independently, on a case-by-case basis.
Give us a call to set up an appointment to schedule your evaluation.