Should Managers Be Paid Overtime?

When an employee is promoted to “manager,” are the days of clocking hours and being paid overtime a thing of the past? Not necessarily, says the authors of “Too Many Managers: Strategic Use of Titles to Avoid Overtime Payments.”  

According to their research, many organizations intentionally promote an employee to “manager” and then pay them a salary barely above the required minimum (federal standard is currently $684/week or $35,568/year). While on the surface this does not seem wrong, doing so to avoid tracking hours and paying overtime for those who otherwise would qualify for overtime is illegal. 

But aren’t managers exempt from overtime? 

Not always. While some states have stricter standards than those found in the Federal Labor Standards Act (FLSA), the federal standard requires specific job duties to be considered in addition to being paid on a regular salaried basis of at least $684/week. Those job duties fall under the exemption categories of: Executive, Administrative, Professional, Creative Professional, and Computer Employee. 

The two exemption categories that are most often confused for overtime are the executive and administrative exemptions. To help clarify, let’s take a closer look at each of these and highlight several class-action lawsuits where corporations got it wrong. 

Job Duties of Executive and Administration Exemptions 

Executive Exemption 

The primary duty of an executive exemption is to manage a company, department, or subdivision. This person: 

• Regularly directs the work of at least 2+ full-time employees; and 
• Has the authority to hire or fire other employees or make suggestions and recommendations as to the change of status of other employees. 

The DOL (Department of Labor) explains that the term “management” includes activities such as the following: 

“…interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.” 

Per this definition, there’s much more authority given than what may typically be included for a front-line manager or supervisor. 

Administrative Exemption 

The primary duty of an administrative exemption is the performance of office or non-manual work directly related to the management or general business operations. They exercise discretion and independent judgment with respect to matters of significance. 

The key to this exemption is the phrase “exercises independent discretion and judgment,” as this is the most pertinent issue to the exemption. The DOL expounds on this to be determined by whether the employee: 

• has authority to formulate, affect, interpret, or implement management policies or operating practices; 
• carries out major assignments in conducting the operations of the business; 
• performs work that affects business operations to a substantial degree, even if the employee's assignments are related to the operation of a particular segment of the business; 
• has authority to commit the employer in matters that have significant financial impact; 
• has authority to waive or deviate from established policies and procedures without prior approval; 
• has authority to negotiate and bind the company on significant matters; 
• provides consultation or expert advice to management; 
• is involved in planning long- or short-term business objectives; 
• investigates and resolves matters of significance on behalf of management; and 
• represents the company in handling complaints, arbitrating disputes, or resolving grievances. 

For additional clarity, the DOL also gives examples of administration exemption work duties that include, but are not limited to: 

“…work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, Internet and database administration; legal and regulatory compliance; and similar activities.” 

Again, there’s much more management and judgment required to be exempt than what a traditional office manager may do. At the end of the day, if the manager cannot make judgments and decisions without needing approval from anyone else, including their immediate boss, they should not be exempt from overtime. 

Class-Action Lawsuits that Violated the Executive or Administrative Exemption 

As a warning of what not to do, here are several examples of companies that misclassified workers as exempt, despite having a managerial title. 

• JPMorgan Chase gave the job title of “assistant bank manager” to employees who performed duties like those of a bank teller. While they often worked more than 40 hours a week, the company avoided paying their assistant bank managers overtime, insisting they were exempt. 
  
  
• Publix Super Markets, Inc. gave the title of “Department Manager” to baker and meat managers who often worked over 40 hours a week but were never paid overtime. These workers’ job duties primarily consisted of manual tasks like “preparing and stocking food, servicing customers, and cleaning.” 
  
  
• Panera Bread Company said its assistant managers (who often worked 55-60 hours per week) were exempt from overtime. However, these workers’ job duties were primarily non-managerial tasks like customer service, cashiering, food preparation, and cleaning. 
  
  
• Facebook gave numerous workers a variety of managerial job titles (“Client Solutions Managers,” “Customer Solutions Managers,” “Account Managers”) without any real managerial responsibilities. All decisions had to be made according to pre-established parameters and these “managers” routinely worked more than 40 hours a week without overtime. 

Managers in All Industries Should Pay Attention to Job Duties 

While the most common offenders of misclassifying managers as exempt are found in food and drink services, retail, hotels, and janitorial or housekeeping services, any industry could be at fault. The key is to never rely solely on someone’s job title without considering job duties. 

For help with knowing whether your workers should be classified as exempt, please contact your certified HR expert. Not a current Stratus HR client? Book a free consultation and our team will contact you shortly.