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Employee Claims Nonexempt Status, Asks for Overtime Pay
Court Rules Employee Fits Exemptions
Classifying employees as exempt under the
FLSA can be difficult. If
you classify them incorrectly, you may owe them overtime. A court decision sheds some light on the criteria for two of the
exemptions.
[Creating HR Policies or Employee Handbook?]
Some
employers classify employees as exempt under the
Fair Labor
Standards Act (FLSA) in order not to have to pay them overtime.
However, if you misclassify these employees, you will most likely
end up owing them overtime. A decision by the Seventh Circuit
Court of Appeals, in Piscione v. Ernst & Young, No. 96 C 1494
(3/23/99), analyzed the requirements for two of the exemptions, the
administrative and professional exemptions, and provided helpful
guidance for classifying employees as exempt.
Employee Claims Nonexempt Status, Asks for Overtime Pay
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In this case, the employee
worked as a consultant in the employer’s Human Resources Consulting
Group from 1991 to 1996. During this time, he was promoted from
staff consultant to senior staff consultant, and later to manager.
His duties included management of client accounts and benefit plans,
performance of plan valuations, preparation of government filings,
calculation of benefits, and the supervision of employees. In
addition, he was pursuing certification as an actuary and met the
employer’s required twenty hours of continuing education each year.
Upon
resignation in 1996, he filed suit claiming the employer incorrectly
classified him as an exempt employee and that he was due overtime
pay. The employee alleged that his job duties did not require him to
use discretion and judgment as required to meet the administrative
or professional exemption. The lower court disagreed, finding that
the employer properly classified him as exempt. The employee
appealed the decision, and the Seventh Circuit also ruled in favor
of the employer.
Court Rules Employee
Fits Exemptions
The Seventh Circuit began
its analysis by looking at the FLSA’s criteria for the
administrative and professional exemptions. It determined that the
“short” tests for the exemptions could be applied since the employee
earned more than $250 a week. A longer test must be used for
employees who earn less than $250.
The
administrative exemption’s short test requires that the employee be
paid on a salary basis, uses discretion and judgment in his work,
and has as his primary duties nonmanual or office work directly
related to management policies or general business operations. The
professional exemption’s short test also requires compensation on a
salary basis and the use of discretion and judgment. In addition,
the employee’s work must require advanced knowledge in a field of
science or learning acquired by a prolonged course of study.
In
applying these tests, the court focused on four key criteria, the
two common elements of the administrative and professional tests and
the two elements specific to the individual tests. First, the court
determined that the employee was paid on a salary basis because he
received the same amount of pay in each pay period and it was not
subject to any reductions because of the employee’s quantity or
quality of work.
Second,
the court addressed whether the employee used discretion and
judgment in his work. It found clear evidence that the employee used
discretion and judgment in planning projects, analyzing accounts,
solving problems, improving processes, and supervising employees.
Although the employee argued that he consulted with others in making
decisions, the court noted that consultation implies an exchange of
views or a request for advice. It does not indicate a lack of
discretion or judgment.
Third,
the court looked at the administrative exemption’s requirement that
the employee’s primary duties consist of nonmanual or office work
that shows a direct relation to management policies or general
business operations. The court noted that an employee’s primary duty
is the one on which he spends the most time or is clearly most
important to the employer. The court found that the employee spent
more than 50% of his time in administrative duties such as client
management and improving methodologies. In addition, the court
looked at the relation of the employee’s primary duties to
management policies or business operations. Since the employee
played an important role in setting up a new voice response system
and enhancing client services, the court found that his primary
duties affected the employer’s policies or operations and helped to
carry them out. As a result, he was covered under this element of
the administrative exemption.
Finally,
the court turned to the professional exemption’s requirement that
the employee’s primary work require advanced knowledge in a field of
science or learning acquired through a lengthy course of study and
instruction. The court determined that since the employee had a
bachelor’s degree in mathematics, was studying to become an actuary,
and kept up with the employer’s education requirements, he had the
requisite advanced knowledge. In addition, the court found that the
employee met the professional exemption since his primary job
duties, including client contact, analysis of data, and analyzing
problems and communicating solutions to clients, required the use of
this advanced knowledge.
Based on
these findings, the court ruled that the employee met all of the
short test elements for both administrative and professional
exemptions.
This case demonstrates
that an employer must examine many aspects of an employee’s work
to deter- mine whether he meets the criteria for the
administrative and professional exemptions. The following tips may
help in making these evaluations:
Understand what “salary basis” means. If you deduct any money
from an employee’s salary for partial day absences, violation of
rules (other than safety rules), or the quality or quantity of
work, he may no longer be exempt.
Know what is meant by “discretion and judgment.” The use of
discretion and judgment is one of the most frequently
misunderstood and misapplied criteria. Work that involves
following established techniques or procedures usually requires
skill more than discretion or judgment. However, a departure from
or change in the procedures may require the use of discretion or
judgment.
Document the primary duties of your employees. The amount of
time spent on the duties is a useful guide in determining an
employee’s primary duties. Keep in mind that the primary duties
also must directly affect the employer’s policies or operations.
Show the specialized knowledge needed to perform the job. In
this case, the employee’s occupation was not one of the obvious
professional exemptions, such as a doctor or lawyer, but his
educational background and the continuing education needed for his
job put him in this exemption.
Do
not rely on job title when classifying an employee as exempt.
Job titles can be deceiving. For example, there can be a vast
difference in the levels of responsibility for employees who are
called “administrative assistants,” making some clearly nonexempt
and others exempt. Always look at the actual duties being
performed.
For more
information on
FLSA Regulations and Interpretations, see Department
of Labor web site,
www.dol.gov/dol/esa/public/regs/cfr/29cfr/toc_Part500-899/0541_toc.htm. |
Personnel
Policy Service, Inc.
