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The Administrative Exemption to the Fair Labor Standards Actby Andrew Whiteman

The Administrative Exemption to the Fair Labor Standards Act

The Fair Labor Standards Act provides that “no employer shall employ any employee any of his employees . . .  for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.” 29 U.S.C. § 207(a)(1). One exception in the law is for employees “employed in a bona fide executive, administrative, or professional capacity.” 29 U.S.C. § 213(a)(1).

The federal Department of Labor has issued regulations that define “administrative” employees who are exempt from the overtime requirements of section 207. An administrative employee is one who is:

(1) Compensated on a salary or fee basis at a rate of not less than $455 per week (or $380 per week, if employed in American Samoa by employers other than the Federal Government), exclusive of board, lodging or other facilities;

(2) Whose primary duty is the 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

(3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

29 C.F.R. § 541.200(a)

Each of those three components will be discussed below.

  1. Salary or Fee Basis

An employee is paid on a salary basis if the employee has a “guaranteed minimum” amount of money the employee can count on receiving for a workweek in which the employee performs any work. The salary basis test does not apply to outside sales employees, teachers, and employees performing law or medicine. The predetermined amount cannot be reduced because of variations in the quantity or quality of the employee’s work. Thus, the employee must receive the full salary for any week in which s/he performs any work, regardless of the number of hours or days worked. With limited exceptions, if an employee makes deductions from the employee’s pay due to the operating requirements of the business, for example, if there is not enough work available, the employee is not paid on a salary basis. Conversely, hourly-paid employees are, by definition, not paid on a salary basis. Similar rules apply to administrative or other employees paid on a “fee basis.” If an employee is paid an agreed sum for a single job regardless of the time required to complete the work the employee is paid on a “fee basis.” See Department of Labor, Fact Sheet #17G: Salary Basis Requirement and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA).

  1. Office or Non-Manual Work Directly Related to Management or General Business Operations for the Employer or its Customers

The Department of Labor’s guidance on the “duties” portion of the administrative exemption test is contained in Fact Sheet #17C:  Exemption for Administrative Employees Under the Fair Labor Standards Act (FLSA). The meaning of the second prong of the administrative exemption is often difficult to ascertain. The regulations provide that exempt administrative job duties test is met if the employee’s (1) primary duty must be (2) the performance of office or non-manual work, which is directly related to management or general business operations of the employer or the employer’s customers.

(a). Primary Duty

“The term ‘primary duty’ means the principal, main, major or most important duty that the employee performs.” 29 C.F.R. § 541.700(a). In deciding whether something is the employee’s primary duty, one looks at “the character of the employee’s job as a whole” and considers factors including, but not limited to:

the relative importance of the exempt duties as compared with other types of duties; the amount of time spent performing exempt work; the employee’s relative freedom from direct supervision; and the relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.

Id.

(b). Office or Non-Manual Work

To be considered exempt under the administrative exemption, the primary duty must be “office or non-manual work” as opposed to the production of goods or services. 29 C.F.R. § 541.200(a)(2).

The administrative exemption requires that the employee’s work be “directly related to the management or general business operations of the employer or the employer’s customers.” Id. The DOL has provided further clarification on what it means to be “directly related to the management or general business operations” in order to meet the administrative exemption:

(a) To qualify for the administrative exemption, an employee’s primary duty must be the performance of work directly related to the management or general business operations of the employer or the employer’s customers. The phrase “directly related to the management or general business operations” refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.

(b) Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities. Some of these activities may be performed by employees who also would qualify for another exemption.

(c) An employee may qualify for the administrative exemption if the employee’s primary duty is the performance of work directly related to the management or general business operations of the employer’s customers. Thus, for example, employees acting as advisers or consultants to their employer’s clients or customers (as tax experts or financial consultants, for example) may be exempt.

29 C.F.R. § 541.201.

  1. Primary Duty Includes the Exercise of Discretion and Independent Judgment with respect to Matters of Significance

29 C.F.R. § 541.202 provides guidance on the meaning of the requirement for the administrative exemption that the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. In general, the exercise of discretion and independent judgment involves the comparison and evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. “Matters of significance” refers to the level of importance or consequence of the work performed. 29 C.F.R. § 541.202(a). The regulation provides a list of non-exclusive factors to be considered in determining whether the employee’s primary duties involve the use of “discretion and independent judgment.” 29 C.F.R. § 541.202(b).

The Fourth Circuit Court of Appeals has held that “the critical focus regarding this element remains whether an employee’s duties involve “‘the running of a business’” . . .   as opposed to the mere “‘day-to-day carrying out of [the business’s affairs.’” Calderon v. GEICO Gen. Ins. Co., 809 F.3d 111, 123 (4th Cir. 2015) (internal citation omitted).

An exempt employee has no right to receive anything other than the full amount of his or her base salary in any work period for which the employee performs work, less any allowed deductions. Overtime pay is not required under the Fair Labor Standards Act. Non-exempt employees, on the other hand, are entitled to time and one-half times their regular pay for each hour they work over the FLSA overtime threshold.

© Andrew Whiteman 2019

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Whiteman Law Firm handles all types of cases involving employee benefits claims under ERISA. Click here for more information about our employee benefits practice. Please contact us for more information.

 

U.S. Supreme Court Takes Cases on LGBT Discrimination in Employmentby Andrew Whiteman

The following blog, well-written by Raleigh lawyer Cullen Stafford, discusses the Supreme Court’s recent decision to grant certiorari in cases involving the issue of whether Title VII of the Civil Rights Act of 1964 prohibits discrimination on the basis of an individual’s sexual orientation or gender identity.

Click here for the article.

 

 

 

 

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