June 16, 2023

FLSA Compliance: The Prequel

As written in the October 26th story, FLSA classification is Step 1. In this instance, the court ruled the employer did not get it right.  This story is a good illustration of one of many challenges in classifying employees under the FLSA’s administrative exemption.

A properly classified administrative employee is one whose primary duty is “directly related to the management or general business operations of the employer or the employer’s customers…An employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.” Examples of work directly related to running or servicing a business include “marketing, accounting, accounts receivable, data governance, e-commerce, human resources, IT, or accounts payable.”

This company’s business purpose was to produce wholesale sales of its products to its customers. The company’s Inside Sales Reps’ (ISR) primary duty was to produce those sales. As a result, the court found the administrative exemption could not be met; they were doing the business of the business, not running or servicing the business.

TIP. As in the October 26th story, this employer was also found to have violated the FLSA’s recordkeeping requirements because it “did not use a timekeeping system to track the hours ISRs worked and did not keep complete records of the
actual hours ISRs worked.” I get it. If you think you have properly classified an employee as exempt, why would you have them record all their hours worked? Because just in case a claim arises and an administrative agency or judge does not agree with your classification, you may be able to mitigate any damages related to recordkeeping violations. In short, it might be proactive to have your exempt employees follow the same recordkeeping procedures you require of your non-exempt employees. Ask your company’s legal counsel for their thoughts on that.