April 03, 2020

To Be or Not to Be…Exempt

To properly classify an employee as exempt or non-exempt under the Fair Labor Standards Act (FLSA), the employee must meet three tests: (1) minimum salary test; (2) salary basis test: and (3) one of three primary duties tests: Executive, Administrative, or Professional. These are frequently referred to as the EAP or white-collar regulations. Of the three, it seems the administrative exemption may be the one that causes employers the most trouble. To qualify under the Administrative exemption, the employee’s work must be, “directly related to the management or general business operations of the employer or the employer’s customers.” In addition, the employee must “exercise discretion and independent judgment with respect to matters of significance.”

But what does it mean for the work to be directly related to management or general business operations? Take the recent case involving tax consultants. The court explained, “an employee’s work must directly relate to assisting with the running of the company, as opposed to simply doing work related to the production of the business’s products or services…This court has described the distinction between these two types of work as: ‘between those employees whose primary duty is administering the business affairs of the enterprise from those whose primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce and market.'”

The court also reminded us that an employee’s job title, whether it is consultant, analyst, administrator, etc. is not relevant. The focus “is on the duties performed by the employees, not on the titles they hold.”

Lessons Learned? Remember that (1) the U.S. Department of Labor operates under an assumption that every worker in the U.S. is non-exempt and entitled to overtime. (2) You, the employer, have the burden to show that any (and every) employee you have classified as FLSA exempt properly meets that exemption under all three tests listed above. (3) There are at least 20 states that have their own “white collar” regulations that are different from and generally stricter than the federal regulations.

Want more information? The U.S. DOL has a free presentation you can download that walks you through the three tests. Click here and scroll down to “Presentations” and click on “Executive, Administration and Professional Exemption…”

You can also access FiveL Company’s archived webcast, “Wage and Hour Update: From WOW’s to Woes.” This program provides certified HR professionals with 1.25 credits pre-approved by SHRM and HRCI.  $25 pp. Just click here for more information or to register.