Don’t Forget to Review Duties Tests for Overtime Exemptions

Pay alone doesn’t determine overtime eligibility

March 5, 2019
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[Updated: March 7 after the DOL proposed a new salary threshold for the white-collar exemptions.]

The Department of Labor's (DOL's) new overtime rule proposal would set a $35,308 salary threshold for the white-collar exemptions. But meeting the salary cutoff is just one requirement for classifying workers as exempt. Employers should also take the time to review workers' job duties to ensure they satisfy the applicable exemption's criteria.

Under the Fair Labor Standards Act (FLSA), workers must be paid 1 1/2 times their regular rate of pay for all hours worked beyond 40 in a workweek unless they fall under an exemption. The most commonly used exemptions are the administrative, executive and professional, collectively called white-collar exemptions.

Until a new threshold is finalized, exempt employees must be paid on a salary basis at least $23,660 annually (or $455 a week). "Some employers are under the impression that if employees are paid a salary, then they are exempt from overtime," said Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and a former acting administrator of the DOL's Wage and Hour Division.

But there's more to the analysis. "Once an employer is confident that the employee meets the minimum salary threshold, then the employer should turn its attention to analyzing whether the employee's job duties fall within the classifications of the applicable exemption," said Anne Cherry Barnett, an attorney with Reed Smith in San Francisco.

Multiple Factors Evaluated

"The duties tests are dependent on a variety of factors," said Tamara Devitt, an attorney with Haynes and Boone in Costa Mesa, Calif. Each of the three white-collar exemptions has slightly different criteria:

  • Executive exemption. The employee's primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee's suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight). 
  • Administrative exemption. The employee's primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer's customers. The employee's primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.
  • Professional exemption. The employee's primary duty must be to perform work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study.

Of the three white-collar exemptions, the administrative exemption is the least straightforward and creates the most challenges for employers, Devitt said. "Employers can sometimes fail to recognize the complexities of the exemption analysis and do not undertake the careful review that should be done before classifying an employee as exempt."

The most common misconception may be the required level of discretion and independent judgment on matters of significance necessary to qualify for the administrative exemption, said Josh Woodard, an attorney with Snell & Wilmer in Phoenix. Employers sometimes place too much emphasis on the salary threshold of the exemption, believing that the exemption is met if the employee is paid a salary and performs nonmanual, office work. "This can lead to the employee and/or the government challenging the FLSA classification," he said.

"In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered," according to a DOL fact sheet.

[SHRM members-only toolkit: Determining Overtime Eligibility in the United States]

Highly compensated employees whose total compensation is at least $100,000 a year are exempt from the FLSA's overtime requirements if they meet a more "relaxed" duties test, as follows:

  • The employee's primary duty is office or nonmanual work.
  • The employee "customarily and regularly" performs at least one of the bona fide exempt duties of an executive, administrative or professional employee, as described in the regulations.
Under the DOL's new proposal, the salary threshold for highly compensated employees would increase to $147,414 a year.

Compliance Tips

The employer has the burden of demonstrating that the exemption applies, Devitt said. "So employers should be thoughtful and careful about classifying employees as exempt."

Businesses should start by creating accurate job descriptions that are tailored to each position, she suggested. Then, employers should ensure that the job descriptions are kept up-to-date, and they should continually monitor jobs for any changes.

"Employers would be well-served to carefully analyze each exempt position on an employee-by-employee basis," Woodard said.

They should understand the work and duties performed by the employee whose job is being analyzed under the regulations, Robinson noted. The content or duties of the job—not the job title—are the key to determining the proper classification under the FLSA, he added.

"Given the complexity of the analysis and the risk of getting it wrong, it is a good idea for employers to include a wage and hour lawyer in the analysis process," Devitt said.

[Visit SHRM's resource page on FLSA exemption classification.]

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