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Exempt from Overtime

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Lesson:

Exempt from Overtime

Lesson Content

NOTE: Since this lesson was created there have been updated regulations starting January 1st, 2020 that increase the threshold in the salary test. Always consult an attorney when making employment law decisions.

Overtime exemptions is a real important area, and it's fraught with a lot of danger. Let's take a look at it just to kinda quantify for you. The Fair Labor Standards Act is the federal law that deals with overtime, and minimum wage, and child labor, and a few other things.

From 1993 to 2002, the number of cases under the Fair Labor Standards Act filed in federal court increased from about 1,500 to 2,000 but then in 2003 it sky rocketed and it continued to go up. In 2003, we started looking at changing the rules. Before 2004, when they actually were changed, the rules regarding overtime in terms of whether or not, the exemptions on that hadn't changed since the act was enacted in 1938. So for 60 plus years, the rules had developed from the regulations that were enacted back then with some minor tweaks here and there and then lots and lots of case law.

In 2004, those rules were all changed and as you can see, part of the result was that the amount of cases went from 2000 up to over 8000, so 4x’s the number of cases are being filed today than they were 12 years prior in 2012. It's amazing.

Now let's look at the factors that deal with why that happened. Part of it, it was a new economy. A lot of people that lost their jobs through the recession are now having the opportunity to go back to work or they are starting their own businesses and they just aren't sophisticated with regards to all of the business details and they make mistakes. They become attractive targets.

In addition, the economic recovery has really changed the demands that we put on employees. In response to the recession, a lot of businesses trimmed every ounce of fat they could from their operations and made it as streamlined as possible. And so now employees are starting to challenge and question that.

Moreover more attorneys are getting into this area of law. One thing there's more demand by the employees. Another thing is that there are statutory provisions that pretty much guarantee the plaintiff’s attorney will have employer pay their attorney fees as well if they prevail. So a lot of attorneys are getting into this area because it's a stronger chance they're going to recover their fees.

Employees also are just more informed, the internet and social media has created an environment where they become more and more aware of what their rights are and what sorts of wage issues are out there.

Let's look at it this way, over time, it ultimately says an employee will be paid time and a half after they've worked 40 hours in a work week.

The basic premise is all employees should be getting overtime. And they're only gonna be denied overtime if they meet certain, very narrowly construed criteria. So we're gonna look at the criteria next, but I want you to think about it from the perspective of the employer who has to overcome this presumption that the employee gets overtime.

It's not because they're the manager, or because they're paid on a salary basis because salary is only part of the test, right? The other part is the job duties. And if they don't meet all of the criteria, they're not entitled to the overtime exemption. Let's talk more specifically about it.

Here are the two tests. Salary basis and job duties. Now ,the salary basis test is pretty clear I think, people need to be paid on a salary basis but what a lot of lay people out there and business people that don't deal with payroll much think is if you make a salary, you don't get overtime. Well, you have to be paid a salary to not get overtime but that's only half the test. The other half of the test is, does the employee's job duties meet the exemption criteria? So both sides of that equation have to be met for that employee to be exempt from overtime.

Currently, this is the salary test. The salary test says that the employee has to be paid on a standard regular basis. Now that salary, if you gonna be truly paid on a salary basis, you can't take deductions out for everything, this person is not being paid by the hour so if they're missing two or three hours, you can't deduct the day or one quarter of their daily time or take any sort of docking based upon a partial base absence. Ultimately, you only can take deductions for full days, whether be a full sick day, or a full personal day, a full week, or the first and last weeks of employments, or in some really narrow circumstances under the rules if that employee violated some written work rules. But to say that a employee needs a salary test you can't deduct partial days is really the key message there. And they have to makeover the threshold.

Now, let's go ahead and talk about the exemptions. And the first three exemptions that I'm gonna talk about are also called the white collar exemptions. The executive exemption is dealing with the people that run the business. They have to manage the enterprise, or at least a department within the enterprise and their primary duty needs to be management. They are responsible as the manager, and that is their primary duty. Now, lots of managers engage in activities that are shoulder to shoulder with their employees, and they are non-exempt activities. But they are the person with the quality of having the department or the enterprise their responsibility, and that is their primary duty. Another aspect of it, is that the exempt executive has to have the ability to supervise two or more employees and have hiring and firing authority or at least their input is given significant weight.

You know I have to have a final decision but you have to have significant weight given to your opinion with regards to hiring or firing employees that are under your supervision and that is the test. Now, the real challenge here frequently is regarding either whether or not somebody truly has hiring and firing authority or there's significant weight given to their input or whether or not they're truly responsible for the operation. That's usually where the executive exemption is challenged.

Now the second exemption on the white collar exemptions is called the professional exemption. And actually this one kinda comes in two flavors. You have your learned executives, or I'm sorry, your learned professionals and you also have the professionals that are creative. If you're going to be a learned professional, and use the professional exemption, then you have to have engaged in a long course of specialized study, frequently in a field of science, although it's not limited to that. But it's essentially for the people that are involved with teaching, or research, things of that nature. Creative professionals could be things like artists, musicians and those types of professionals fit within this professional exemption as well.

Now the job duty for the third type is where probably the most challenges happen for businesses. And these are your administrative people, you administrate the exemptions. And a lot of the reason is because the employee that we're seeking the exemption on just doesn't meet the requirements. They might be in a non-manual office environment, but they don't have a primary duty that deals with managing the policies or general business operations. My point here is that that primary duty is important. It can't be somebody that is merely clerical, and therefore administrative. They have to have some authority and they have to have the ability to exercise discretion and independent judgement on things that are important, that are of significance.

So, your administrative exemption is frequently challenged because businesses will try to apply it to somebody that doesn't have the requisite authority or discretion in independent judgment to qualify for the exemption.

Now those three, executive, professional and administrative are know as the white color exemptions. But there are all others. I'll give you two more that are very common as an example.

First of all, we'll talk about outside sales people. Outside sales people primarily are involved with sales and taking orders and travel outside of the main work place, do have an exemption and that is the job duties test for that. Additionally, computer professionals, and as we become more and more entrenched in technology, this is going to become more and more important to different businesses but it's important to note that not everyone that sits in front of the computer is a computer professional. If you're merely using software that's been put on there by other people and you're inputting data, that doesn't make you a computer professional, you have to be involve with things that are very sophisticated, system analysis, you know, IT, architecture, designing, modifying and changing computer systems or programming specific programs, or some combination there of. So computer professionals is, I think, a growing exemption in terms of people using it in the work place but is also one that can create liability if you're just going to take a person that is a data entry person and assert they're a computer professional.

Mark Addington

Instructor:

Mark Addington

Mark A. Addington, Esq. advises and advocates on behalf of businesses concerning Labor & Employment Law, Business Regulatory Compliance, Restrictive Covenants (Non-Competition, Non-Solicitation, and Confidentiality), Wage & Hour, Privacy, Technology,...

Mark's Full Bio

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