In general, employees who work more than 40 hours a week are entitled to overtime pay at a rate of 1 ½ times their “regular rate” if they exceed the 40 hours. However, certain employees may be exempt from overtime if certain criteria are met. These are regulated by the Fair Labor Standards Act of Fair Labor 1938 Section 213(a)(1). In general, those exempted are classified into five positions:
- Employed in a bona fide executive role.
- Administrative role.
- Professional capacity.
- Outside salesman .
- Computer designers and developers. (Base salary must be at least $57,740.
In addition each position must meet certain tests in regards to their job duties. The test is usually two-fold; a Salary test and a duties test. If an employee is paid a fixed amount of money; weekly, biweekly or monthly and there is no deduction from the fixed rate based on the quantity or quality of the work; the salary part of the test would be met.
The duties test is different for each of the criteria and must be considered by the actual work done and not the job title or job description. According to the Code of Federal Regulations Section 541; to be exempt an:
- Executive must:
1.1 Customarily direct the work of 2 or more employees
1.2 Primary duty is Management
1.3 Authority to hire and fire or recommend a change in status
1.4 Regularly and customarily exercise discretionary powers
1.5 Spend no more than 20 % of their hours in a workweek not directly and closely related to those duties or 40% in a retail or service establishment.
1.6 Be paid on a salary basis.
- Administrative Employee:
2.1 Primary duty must be to:
2.1.1 Perform office or non-manual work directly related to management policies or general business operations or
2.1.2 Perform work in and educational administration which is directly related to academic instruction or training.
2.2 Customarily exercise discretion and independent judgement
2.3 Regularly and directly assist a bona fide executive or administrative employee; or perform under only general supervision work that is specialized or technical and requires special training or knowledge; or performs special assignments or tasks under only general supervision.
2.4 Spend no more than 20 percent of their hours in a workweek in activities not directly or closely related to the above duties, or 40% in a retail or service establishment.
2.5 Be paid on a salary basis.
- Professional Employee must:
3.1 Primary duty must require:
3.1.1 Advanced Knowledge customarily requiring extensive education or
3.1.2 Originality and creativity in a recognized artistic field or
3.1.3 Teaching or otherwise imparting knowledge as a teacher in a school or in an academic or educational institute or
3.1.4 Theoretical or practical application of highly specialized knowledge in computer system analysis, programming, and software engineering in a computer or software occupation
3.1.5 Consistently exercise discretion and judgement.
3.1.6 Perform work which is predominately intellectual and varied and which cannot be standardized in relation to a given period in time.
3.1.7 Spend no more than 20% of their hours in the week in activities not essential and necessarily incidental to the above duties and
3.1.8 Be paid on a salary basis.
- Outside Salesmen must:
4.1 Engage in making sales or obtaining orders away from their employer’s place of business
4.1.1 Devote no more than 20% of the hours worked by non-exempt employees of the employer to work other than making sales.
- Computer Designers and Developers
5.1 Engage in the application and system analysis techniques and procedures
5.2 Design, develop, create testing for computer systems or programs.
5.3 Design ,document, testing programs related to machine operating systems.
The reason to review this is that the minimum “basis” for salary was set at $455 dollars a week (updated in 2004). In 2014 President Obama directed the Department of Labor (DOL) to promulgate new rules regarding the minimum wages that need to be paid in order to be exempt from Overtime Regulations. This was done to “modernize” overtime exemptions.
New rules were announced in the Spring of 2016 which doubled the minimum salary required to $47,476 annually or $913 per week.
In the fall of 2016, the rules developed by the DOL were challenged by the case of Nevada vs. U.S. Department of Labor. U.S. Court of Appeals Judge, Amos Mazzant of the Eastern District of Texas issued a temporary injunction nationwide for the new rules, effectively stopping them from being enforced on the December 1st date. The DOL was found to have overstepped its authority in drafting the final rule. The Judge held that it created a rule based on salary levels and without the duties test that Congress desired.
A final ruling was later issued which permanently stopped the rules from taking effect. The only recourse left was for the DOL to appeal. With a change in administrations this ruling does not seem likely to be appealed.
On August 31st 2017, the Judge granted the Plaintiff’s Motion for a Summary Judgement holding the December 2016 rules” invalid” for eliminating the duties test and basing it solely on salary.
The DOL has asked for comments in order to form a new set of rules. New rules are expected to be drafted to raise the salary level to at least require a salary above the poverty level.
Overtime issues that arise can often be things like:
- Working through lunch.
- After hours emails
- Time spent going through security; before and after work
- Failure to track hours worked, accurately.
- Requirements for being at work early for meetings, updates etc. prior to clocking in.
- Unpaid training or safety sessions.
- Tipped workers reporting early to set-up tables, bar etc.
Having said all this, it would appear that change is inevitable and we should be cognizant of our clients employees and their salary ranges. In addition, it would behoove us to ensure that those on salaries fall within the “duties” required for exemption. If the salary levels are met; are the duties test also being met? We often have clients that may not be aware of the rules but put themselves at risk. The pay awarded for failure to pay earned overtime can be very substantial. Advising them of potential pitfalls is our responsibility as well as suggesting valid alternatives. Remember that paying Overtime may not be as expensive as first thought.
Mr. Groo is a graduate of Rutgers University and the University of Florida, College of Law. He has successfully helped many small and medium sized businesses to grow and prosper.
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