Authored by Alex Passantino
Look . . . here are a couple of statements that are not FGCU slam-dunk defenses to a claim of misclassification under the FLSA:
- “But . . . we’ve always done it this way!”
- “But . . . all of our competitors pay their people this way!”; and
- “But . . . we paid them a salary!”
The last one is a particular problem, as a real estate title company recently found out. Under the FLSA, the payment of a salary is often a requirement for an employee to qualify as “exempt.” No FLSA exemption, however, simply requires the payment of a salary. None. Failure to recognize this distinction has caused many an employer to make huge backwage payments to WHD or to settle large cases with private litigants. Every day a new misclassification case is filed somewhere in the country; WHD looks for misclassification issues in virtually every investigation it conducts. Misclassification is going to impact you, if it hasn’t already.
Wait A Second . . . Go Back to That Whole “A Salary Doesn’t Make You Exempt” Thing
OK. The FLSA basically requires the payment of minimum wage for all hours worked and an overtime premium for all hours worked over 40 in a workweek. Over the past 75 years, Congress has passed more than 50 different exemptions and exclusions from the minimum wage and/or overtime requirements. These exemptions range from employees working in a motion picture theater to employees engaged in the processing of maple sap into sugar (other than refined sugar) or syrup to switchboard operators “employed by an independently owned public telephone company which has not more than seven hundred and fifty stations.” (Seriously.)
When most employers say “exempt,” however, they are referring to the “white collar,” or “541,” or “EAP” exemption — an exemption from the minimum wage and overtime requirements for employees in an executive, administrative, or professional capacity. Also included in this category are outside sales and computer employees, but we’ll discuss those another time. Today, we focus on the executive, administrative, and professional employees.
Generally, to qualify for the FLSA’s white collar exemption, an employee generally must meet certain tests regarding his job duties and be paid on a salary basis at not less than $455 per week. That’s both a duties component and a salary component. Of course, there are exceptions to the exemption’s requirements — for example, doctors, lawyers, and teachers need not be paid a salary — but the simple fact is that salary alone does not an exempt employee make. It is critical — critical — that the employee also meet the job duties requirements of the exemption.
The job duties are described in the regulations. Generally, though, executive employees must manage, supervise two or more employees, and have the authority to make (or provide real input towards) important decisions regarding other employees’ employment status. Administrative employees generally must perform office or non-manual work that is directly related to general business operations and must exercise discretion and judgment with respect to important matters. And professional employees typically have advanced knowledge (and fancy degrees) or perform work that is artistic or creative.
Well . . . What Should We Do?
For employees who are not being paid overtime, the question you should be asking is “Why?” If the response is “that’s how we’ve always done it” or “she’s paid a salary,” you’re probably going to want to spend some additional time looking at that employee’s job duties to determine whether an exemption applies. It’s also worth taking a look at other positions, whether that involves a comprehensive exempt status assessment or a spot check of positions that might be on the border between exempt and non-exempt.
Making sure that your positions are properly classified before the lawsuit is served or the investigator shows up at your door . . . that’s like draining a three as time expires. For. The. Win.
“What Happened, Dude?” is a weekly blog post in which we break down recent enforcement activity by the U.S. Department of Labor’s Wage & Hour Division (WHD), look at what went wrong for the employer, and share some lessons for other employers.