Salary Alone Does Not Earn Overtime Exemption Status
If you make more than $47,476 as of December 1, does that automatically mean you are exempt from earning overtime wages? Answer...
Do your managers meet all the qualifications to be exempt from overtime? See where several large corporations went wrong.
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.
The primary duty of an executive exemption is to manage a company, department, or subdivision. This person:
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.
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:
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.
As a warning of what not to do, here are several examples of companies that misclassified workers as exempt, despite having a managerial title.
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.
If you make more than $47,476 as of December 1, does that automatically mean you are exempt from earning overtime wages? Answer...
Salaried employee vs. an employee that doesn't have to track time because they aren't subject to overtime wages -- is this the same thing?
Unsure whether you have an exempt or non-exempt employee? If you classify an employee incorrectly, you could be putting your business at risk.