Last month, we took a look at employee overtime classification. We discovered that hourly employees are almost all overtime-eligible, but the issue gets more complicated for salaried employees, as Staples recently experienced. Just last week, the company agreed to pay $42 million to resolve multiple lawsuits alleging they erroneously classified overtime-eligible salaried employees as being exempt from overtime.
As we’ve previously noted, some business owners mistakenly believe they don’t have to pay overtime to any salaried employees. This error can lead to disgruntled employees, wage and hour investigations and lawsuits. In fact, under current wage and hour law many salaried employees are overtime-eligible.
Exemption Criteria: the Basics
In order to be exempt from overtime, salaried employees must generally be paid at least $455 a week (which translates to $23,140 a year), and their job duties must meet at least one of the following exemption criteria. (Note there is an exception to the $455 a week requirement for Outside Sales employees.)
Exemption Criteria: the Details
As many businesses have learned the hard way, according to the federal Fair Labor Standards Act (FLSA) it doesn’t matter what title you give an employee. When it comes to overtime classification, what matters is what the employee actually does for the bulk of their day.
For instance, a restaurant “assistant manager” who spends almost all her time flipping burgers and mopping the floors would likely be overtime-eligible despite her “managerial” title.
In order to be exempt from overtime, an employee must first meet the general criteria above. In addition, their duties must fall into one of these categories:
Executive: The employee must spend the majority of their time managing the business or a or subdivision / department of the business. They must regularly direct the work of at least two other full time employees. They must also have the authority to hire and fire employees — or at least their recommendations regarding hiring, firing and other employee status changes must be given “particular weight.”
Administrative: The employee must spend most of the day performing non-manual work directly related to the management or general business operations of the employer. The employee’s duties must involve the exercise of discretion and independent judgment “with respect to matters of significance.”
Of course, what constitutes a “matter of significance” is open to interpretation. However, if someone is a clerical employee whose discretion is limited to deciding which website to use to book the boss’s next business trip, simply calling that employee a “senior executive administrative assistant” will probably not be enough to invoke the administrative exemption.
Learned or Creative Professional: A “learned professional” must have advanced knowledge in a field such as law, medicine, accounting, actuarial computation, engineering, education and the sciences. The employee generally will have acquired this knowledge through advanced education, such as at a college or university. Their work requires the constant exercise of discretion and independent judgment.
A research scientist or a Certified Public Accountant would probably be considered a learned professional. A lab assistant or a bookkeeper would likely not fall into this category.
A “creative professional” job requires invention, imagination, originality and/or talent in an artistic or creative field such as music, writing, acting or the graphic arts.
Computer Professional: Unlike most other exemptions, the Computer Professional exemption allows for either salaried or hourly compensation. Employees must meet the $455 a week minimum salary requirement, or if paid hourly, must be paid at least $27.63 an hour.
The employee must be a computer systems analyst, computer programmer, software engineer or other similarly skilled computer worker. Their primary duties must consist of high-level computer related tasks such as systems analysis, programming, technical documentation or software testing.
Remember, just because someone “works with computers,” this doesn’t make them a “computer professional” for the purpose of overtime exemption. Computer repair technicians, for instance, usually will not qualify under this exemption.
Highly Compensated Employee: These are employees who make at least $100,000 a year, of which at least $455 a week must be paid in salary. They perform non-manual work, but don’t meet the primary duty test for the executive, administrative or professional employee exemptions. However, in order to qualify for the Highly Compensated Employee exemption, they must “customarily and regularly” perform at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.
Confusion often arises regarding this exemption because several states have not fully adopted this exemption. Under the law, when there is a conflict between federal and state rules, whichever one is more favorable to the employee will “win.” If you have highly-compensated employees, it’s important you check with your employment law advisor to ensure you’re paying them correctly.
Outside Sales: Outside sales employees do not have to meet the $455 per week salary basis. However, their primary duty must be making sales or obtaining orders or contracts, and they must generally work away from the employer’s place of business.
Exemption Criteria: Who’s NOT Covered?
- “Blue Collar”: These exemptions don’t apply to employees who work with their hands, doing jobs that primarily require physical skill and energy. This would include such categories as production, maintenance, construction, carpentry, electrical work, plumbing, ironworking, and other laborers.
- First Responders: A second exception applies to police officers, fire fighters, paramedics/EMTs and other first responders. This category also includes correctional officers, parole/probation officers, park rangers, hazardous materials workers and other similar employees. It doesn’t matter what their rank is or how much they’re paid, these workers ARE eligible for overtime.
Also, it’s good to note that employers can pay higher overtime rates, or pay overtime to employees who would otherwise be exempt. However, you cannot pay less than time-and-a-half to overtime-eligible employees for any overtime worked.
In other words, you can go “above and beyond” what the law mandates, but you can’t do less.
Exemption criteria are complex, and there are significant gray areas. We strongly encourage you to periodically review your employee classifications with a qualified employment law advisor.
If you have overtime-eligible employees, hourly or salaried, Acroprint offers a full line of time and attendance recorders suitable for all types of businesses and work environments.