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THIS WEEK’S E-TIP: FLSA: When is a Manager Really Exempt?
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^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ THIS WEEK’S E-TIP: FLSA: When is a Manager Really Exempt? The FLSA executive exemption seems straightforward enough, yet many organizations have had problems resulting from classifying employees improperly as exempt managers. Find out what criteria your employees must meet to avoid overtime payouts and penalties. |
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THIS WEEK’S E-TIP: FLSA: When is a Manager Really Exempt? The Fair Labor Standards Act (FLSA) executive exemption arguably is fairly easy to implement. As a general rule, if employees are responsible for two or more employees, can hire and fire, and manage a department or store, they will meet the criteria. However, over the last few years, this executive exemption has been the subject of several high-profile overtime cases, typically involving employees who were managers in name only or who also performed the job duties of nonexempt employees in their charge. Starbucks, RadioShack, Abercrombie & Fitch, and Family Dollar stores all have been targeted by class action suits seeking millions of dollars in overtime for employees allegedly improperly categorized as exempt employees. So how do you avoid becoming the next multi-million dollar suit? Find out below what it takes to meet the executive exemption. (Download free report: “FLSA Exemption Regulations.”) * The Regulations’ Criteria * According to the FLSA regulations that took effect August 24, 2004 (found in 29 C.F.R. §§541.100, et seq.), workers are employed in an executive capacity if they are compensated on a salary basis at a rate of at least $455 per week (equal to $23,660 annually), exclusive of board, lodging, or other facilities. In addition, the workers’ job duties must meet all three of the following criteria: 1. Their primary duty consists of the management of the enterprise in which they are employed or of a customarily recognized department or subdivision of it. Examples of the “management of the enterprise” include: interviewing, selecting, and training employees; setting and adjusting employee pay and hours of work; directing the work of employees; appraising employee productivity and efficiency for the purpose of recommending promotions or other changes in status; disciplining employees; planning the work; determining the type of materials, supplies, machinery, equipment, or tools to be used or merchandise to be bought, stocked, and sold; providing for the safety and security of employees or the property; planning and controlling the budget; and implementing legal compliance measures. A “customarily recognized department or subdivision” must have a permanent status and a continuing function, as distinguished from a “mere collection of employees” assigned sporadically to a specific job. 2. They customarily and regularly direct the work of two or more full- time employees or their equivalent. For example, one full-time employee plus two half-time employees equals two full-time employees. Note that an employee who supervises two or more employees only in a manager’s absence does not meet the exemption. 3. They have the authority to hire or fire other employees, or their suggestions and recommendations are given particular weight concerning the hiring, firing, advancement, promotion, or any other change of status of other employees. Factors to consider to determine if suggestions and recommendations are given “particular weight” include whether it is part of the employee’s job duties to make the suggestions and recommendations, the frequency with which they are made or requested, and the frequency with which they are relied on. To qualify, the executive’s suggestions and recommendations must pertain to employees whom the executive customarily and regularly directs, not to occasional suggestions regarding the status of a coworker. However, the executive’s suggestions and recommendations will still be considered to have the necessary weight even if a higher- level manager can overturn the decision, or if the executive does not have authority to make the ultimate decision about an employee. The new regulations also contain an exemption for employees who are 20% equity business owners and who are actively involved in the management of the business. (Download free report: “FLSA Exemption Regulations”) However, an employee who is training for employment in an executive position and who is not actually performing the exempt duties for that occupation is not considered exempt. |
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* Guidance from the Courts and the DOL * Cases that were decided under both the old and new regulations and a recent Department of Labor (DOL) opinion letter provide helpful guidance on how the executive exemption has been applied, particularly in determining whether an employee’s job duties qualify for the exemption. (Note, though, only a few cases have been reported interpreting the new executive regulations.) In Thomas v. Speedway SuperAmerica, LLC, 506 F.3d 496 (6th Cir. 2007), decided under the old regulations, the Sixth Circuit found that a manager for a chain retail store had management as her primary job duty even though she indicated she spent only 40% of her time on managerial duties. The court determined that the employee met the executive exemption based on the facts that her managerial duties such as hiring and training employees and assigning the weekly work schedule were much more important to the running of the business than her nonmanagerial duties such as stocking shelves and cleaning bathrooms, and that she was generally unsupervised in her work. Similarly, the DOL determined in a recent opinion letter, FLSA 2006-29, that a gas station manager was still considered exempt even though he occasionally “worked the drive,” performing duties of a nonexempt station attendant. The manager typically would act as an attendant only for a few hours every year. According to the DOL, a manager who performs nonexempt duties for a full day at very irregular and infrequent intervals still meets the primary duty requirements for exempt executive employees. In contrast, in a case involving both the old and new regulations, in Davis v. Mountaire Farms, Inc., 453 F.3d 554 (3d Cir. 2006), the Third Circuit found that testimony from the crew leaders indicated that they were not exempt managers because their job duties did not include hiring, firing, or recruiting crew members and that they did not have the authority to do any of these duties as required by the FLSA exemption. Accordingly, the court sent the case back for further deliberation to determine the employees’ status. * Get Executive Classification Right or Pay the Price * It has been nearly four years since the new exemption regulations took effect, and many employers are still struggling to comply with them. If you think you have exemption classification problems, you should fix them or expect to face expensive fines and lawsuits. (Download free report: “FLSA Exemption Regulations.”) Under the regulations, your organization could be liable for overtime pay going back up to two years for any employee who is misclassified as exempt. And, this back pay liability typically is extended to three years if you are found to have willfully (intentionally) violated the law. As an example, Family Dollar recently was hit with a $19.l million dollar jury verdict in favor of over a thousand store managers. The managers were improperly categorized as exempt executives because they did not supervise enough employees or their primary job duties did not meet the exemption’s criteria. The company also could face an additional $20 million in liquidated damages, not to mention attorneys’ fees. Clearly, misclassifications can be expensive. So be sure that your exempt managers not only supervise the requisite number of employees, but also do not spend too much time performing the work of their subordinates. If they are spending more time serving your customers than managing your employees, you need to reevaluate their classifications. Otherwise, you could face a class action lawsuit and serious penalties. |
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Subscribers to the
Personnel Policy Manual (print/online) and HR Policy Answers on CD can find information on the executive exemption in Hours of Work, Chapter 207, note 24. Not a subscriber? If you would like to order one of our policy chapters, go to: http://www.hrpolicyanswers.com. If you have any questions, please call us at 1-800-437-3735. We'll be happy to help you. |
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