Avoid the FLSA Can of Worms

08/19/08

The Case
“Come on in, Chuck,” said Bill, his boss. “What’s up?”

“It’s Tommy,” said Chuck. “He says we’re not paying him enough, because he shouldn’t be on salary and should be getting overtime.”

“Does he usually work more than forty hours a week?”

“I guess so, but I don’t make him, said Chuck. “He’s got stuff to do, so he stays until six or seven until it’s done. I’d say he works maybe fifty hours a week.”

“So,” said Bill. “Why doesn’t he think he’s exempt from the overtime laws?”

“Well,” said Chuck, “We hired him as my assistant. The original HR person here classified him as administrative and said he rated an exemption. We paid him a little bit more and gave him a fancy title—executive administrator—and told him he was like a manager. But he thinks he’s just a glorified go-fer and should be paid hourly wages plus overtime.”

“Do you think he’s ‘like a manager?'” asked Bill.

“No. But I give him projects to complete, details to follow up on—it’s not like he’s making widgets,” said Chuck.

“But does he have control over the work?” asked Bill.

“Not really. Look, Bill, I get confused by this stuff. In some ways, he’s a manager—he controls his time, for instance. In other ways, he’s not, because I’m always telling him what to do next.”

“I get confused, too,” said Bill. “Let me check with our attorney and I’ll get back to you.”

The Analysis
I rarely enjoy having to be the bearer of bad news, but I would have to tell this employer that it is not likely that Tommy is an exempt employee. The fact is, the Fair Labor Standards Act (FLSA) is the law that is most often violated by employers. And the most common mistake I see employers make is misclassifying nonexempt employees.

A common misconception among employers: putting employees on salary and giving them managerial-sounding job titles make them exempt. Neither of these things has much to do with whether someone is exempt under the FLSA, and they won’t convince the Department of Labor that the person is exempt either!

The Nature of Exemptions
There are four major bona fide exemptions under the FLSA. Commonly referred to as the “white collar” exemptions, they are: executive, administrative, professional, and outside sales. The FLSA has specific criteria that define whether a worker is exempt under each of these. The DOL recently issued the new FairPay Rules, new regulations revising the criteria for each exemption. If employees do not meet the current criteria for the exemption, they are not exempt. It doesn’t make any difference that an employee is well paid, nor does it matter what title you give him or her.

In the case, Chuck explains to his boss, Bill, that Tommy has been told he is “like a manager.” But is he actually managing anyone? In order to be exempt under the executive exemption, the person must:

Be paid a salary that is at least $455 per week.

Supervise directly a minimum of two or more full-time employees (or the equivalent, such as one full-time and two part-time employees whose combined hours equal that of a full-time employee).

Manage a department, agency, or subdivision as his or her primary duty, and have the authority to hire and fire or recommend hiring, firing or other job status changes.

This exemption clearly does not apply to Tommy. He is an administrative assistant who supervises no one. The only other exemption that might arguably apply to him is the administrative exemption, which requires that the following criteria be met:

The employee is paid at least $455 per week on a salary or fee basis.

The employee's primary duty is to perform office or non-manual work that is directly related to management policies or general business operations.

The employee’s duties require the exercise of discretion and independent judgment, with respect to matters of significant importance.

Rote clerical duties such as data entry, typing, or filing do not qualify. Nor does production-type or manual work.

The kind of duties that do qualify as exempt often involve work requiring special training, experience, or knowledge. Additionally, the person must be minimally supervised, because under this particular white-collar exemption, he or she must have the ability and the authority to make decisions on behalf of the business using his or her own discretion and judgment.

Clearly, this exemption does not apply to Tommy, either. He is not free to make decisions on his own and Chuck directs and closely supervises his work.

What To Do?
To the extent Tommy has worked more than forty hours a week, he should have been paid overtime—and he knows it. That he has worked over forty hours a week without being asked to is irrelevant. The legally correct thing for this employer to do is reclassify Tommy as non-exempt, have him start keeping a time card, and pay him overtime.

Alternatives would be to change Tommy’s job duties and responsibilities so that he does qualify for one of the exemptions, or to limit him to a maximum of forty hours per week and require him to keep a time record to substantiate those hours.

But what about the overtime he has worked in the past? That’s a tough question that will have to be answered in another column.