Classification of Exempt Employees
In 1938, after President Franklin Roosevelt had spent years trying, Congress passed the Fair Labor Standards Act, or FLSA. At the time it was passed, labor conditions in the US were reprehensible.
Attempts by the states to regulate labor conditions had been struck down by the Supreme Court in the Tipaldo Case in 1936. Joseph Tipaldo, the manager of a Brooklyn, NY laundry had been paying his female workers only $10 a week in violation of the New York State minimum wage law. When the state intervened and forced him to pay $14.88, he coerced the employees to kick-back the difference. The state prosecuted him, but his lawyer went to the United States Supreme Court which voided the law as a violation of liberty to contract. The Supreme Court also struck down the portions of the National Recovery Act that attempted to deal with working conditions.
After the Tipaldo case, a worker in Bedford Mass tried to give President Roosevelt a note, saying that she and her coworkers at a textile factory had been cut to $4 a week from the state's $11 minimum wage.
It wasn't only the amount of the wage that was abused, workers were also forced to work six day weeks and 10 hour days. For example, a survey by the Labor Department's Children's Bureau of a cross-section of 500 children in several states showed that one fourth of them worked 60 or more hours a week and only one third worked 40 or less. Their median wage was about $4 a week. Women in canning factories in Georgia were paid $4.50 for 60 hours work a week.
Finally, two years later, in the face of President Roosevelt's threat to "pack" the court, the Supreme Court relented and found wage and hour regulation of interstate companies to be constitutional after all.
Things have changed since then, most recently 2 years ago. The point of this article is not to talk about the history, but to point out that FLSA was begun and remains essentially about worker protection.
As passed in 1938, FLSA:
1) applied to industries whose combined employment represented about one fifth of the labor force;
2) banned oppressive child labor;
3) set minimum hourly wage at 25 cents and;
4) set the maximum work week at 44 hours.
The concept of a maximum work week is a bit of a misnomer. An employer can have his workers work longer than the limitation, now 40 hours, but has to pay them at an overtime rate. Some workers do not have to be paid at an overtime rate. These exceptions are called exemptions, leading to the terminology of exempt and non/exempt workers. Because the statute is for worker protection, the assumption is that everyone is non-exempt, and therefore entitled to overtime, unless they fit the narrow exemptions.
The exemptions are narrowly construed, and job titles alone are insufficient to establish exempt status.
There are certain statutory exemptions that apply in certain areas, for example, domestic employees, certain agricultural employees and employees of certain amusement or recreational establishments. For businesses that do not have special statutory exemptions, here are very brief descriptions of seven exemptions that can apply.
1) Executives. Must meet all the following requirements:
(a) paid on a salary, not hourly, basis of not less than $455/ week;
(b) whose primary duty is management of the enterprise or of a subdivision thereof;
(c) customarily and regularly directs the work of two or more other employees; and
(d) who has authority to hire or fire other employees or whose suggestions and recommendations as to hiring, firing, advancement, promotion or any other changes of status of other employees are given particular weight.
(e) In addition, an employee who owns 20% equity and is actively engaged in management is also exempt as an executive.
2) Administrative Employees. Must meet all the following requirements:
(a) Same salary requirement;
(b) Primary duty performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and
(c) Whose primary duty includes the exercise of discretion and independent judgment with respect to mattes of significance
(d) Examples are: claims adjusters, financial services employees, human resource manager, purchasing agents.
3) Professional Employees. Must meet all the following requirements:
(a) Same Salary;
(b) Primary duty must consist of performance of work requiring advanced knowledge--defined as work that is predominantly intellectual in nature and includes work requiring the consistent exercise of discretion or judgment;
(c) advanced knowledge must be in a field of science or learning;
(d) that is customarily acquired by a prolonged course of specialized intellectual instruction.
(e) Examples are doctors, lawyers, teachers, accountants, pharmacists, engineers, chefs. Not paralegals, or accounting clerks.
4) There are other exemptions:
(a) Creative Professionals--Actors, singers, artists.
(b) Computer Specialists-those doing highly technical work-design, development.
(c) Outside Salespersons.
(d) The highly compensated--over $100,000 a year.
These rules can lead to some things that may not be obvious.
? No "comp" time for non-exempt employees, unless the missed time is made up in the same week.
? Exempt employees cannot be docked an hour of their pay, only for full days used for personal reasons.
? No volunteering by non-exempt employees, the employer is responsible to pay overtime even if they don't know about it.
Finally, it is vitally important that the employer take care to keep track of all hours worked by non-exempt employees, because in case of a complaint, the burden is on the employer to establish that the employee was paid properly. This article is only an introduction to the intricacies of the classification of exempt employees, and does not discuss many vital issues. Each position must be fully considered separately before being classified. We would be happy to help with any classification issues you have.
Cheryl Smith Fisher
Magavern, Magavern & Grimm, L.L.P.
1100 Rand Building
14 Lafayette Square
Buffalo, New York 14203
cfisher@magavern.com
(716) 856-3500
(716) 856-3390 fax