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Is your employer required to pay you overtime when you work more than 40 hours a week? Or is your job exempt from overtime due to the nature of your work? What is an “exempt” employee anyways?

One of the most common issues in employment law is misclassification of exempt employees, which occurs when an employer incorrectly determines an employee is not entitled to overtime pay. Many employees wonder whether they are being paid unfairly, but the laws surrounding overtime can be confusing and sometimes employees go years without knowing the truth. By examining the law, you can get a better idea about whether your job is correctly classified for overtime exemption.

THE FAIR LABOR STANDARDS ACT (FLSA)

The Fair Labor Standards Act (FLSA) outlines how much and what kind of compensation employees who work for qualified employers should receive. Many people consider this law the “federal minimum wage and overtime law,” but the FLSA goes much further. Employers must abide by many conditions of the FLSA when establishing and implementing pay practices and policies for employees.

Regarding overtime wages specifically, one of the threshold questions determining whether an employee is entitled to overtime wages is whether the employee is considered “exempt” under the FLSA. So what is an “exempt” employee? Under the FLSA, the definition of exempt employee is one who meets two requirements:

(1) Paid a minimum salary set by the FLSA; and

(2) Performs work that is considered a function of one of the FLSA exempt job categories or industries.

If an employee is properly classified as exempt, he is not entitled to overtime wages.

THE MINIMUM SALARY REQUIREMENT

Being an exempt employee means you are assured a basic salary regardless of the hours you work. In other words, as an exempt employee, if you work 50 hours one week and 32 hours the next, you are paid the same salary regardless.

The FLSA sets a minimum salary for exempt employees. To be properly classified as exempt, most exempt job categories require a minimum weekly salary of $455. Exempt computer employees, whose job duties are discussed below, must be paid either $455 per week or at least $27.63 per hour.

THE JOB CATEGORY REQUIREMENT

The FLSA uses two methods of classification to determine whether or not an employee is considered exempt. The first requires an employee’s job to fit in one of the following categories:

• Executive Employees
• Administrative Employees
• Professional Employees
• Computer Employees
• Outside Sales Employees

The FLSA also establishes other statutory exemptions for specific types of workers based on work they perform or the industry they work in. For example, employees who drive trucks over 10,000 pounds are exempt from overtime wages, as are railroad employees, air transportation employees, taxicab drivers, local delivery drivers, domestic servants who live with the clients they serve, motion picture theater employees and employees who work for amusement parks. Agricultural worker wages are also heavily regulated by the FLSA. For purposes of this article, we will examine the Executive, Administrative, Professional, Computer and Outside Sales Exemptions.

FIVE PRIMARY EXEMPTION CATEGORIES

The Executive Exemption

Under the FLSA, you are exempt under the Executive exemption if your job duties meet the following criteria:

1. Your primary duty is managing the company for which you work or a department or subdivision of that company.

If management is your primary duty, you spend the majority of your work hours performing management activities such as

• interviewing, selecting and training employees
• setting and adjusting employee rates of pay and hours of work
• directing employees work
• appraising performance for purposes of recommending promotions
• handling employee complaints
• imposing employee discipline
• apportioning work among employees
• providing for employee safety
• budget planning
• monitoring legal compliance

This is not an exhaustive list and employees need not exercise all of these functions in order to be considered exempt executives. You may be still be considered exempt under this section if you perform some non-exempt duties as long as your exempt duties are relatively more important and you spend more time on those duties than on the non-exempt work.

2. You regularly direct the work of two or more employees.

This requirement means you instruct two or more full time employees in their work more on a regular (not occasional) basis.

3. You have the authority to hire and fire other employees or make suggestions to hire and fire other employees.

Under this requirement, you must have the authority to make or significantly contribute to decisions regarding hiring, firing or change of status (promotion, demotion, etc).

The Administrative Exemption

In order to qualify as an exempt Administrative employee, your job duties must meet the following requirements.

1. You have the primary duty of performing “office or non-manual” work;

This does not mean it is your ONLY duty to perform “office or manual” work. If you perform some manual work (operating a machine in a factory 1 day out of 5 per week) but primarily perform non-manual work in an office, you likely meet this requirement.

2. The “office or non-manual work” is directly related to the management or general business operations of the employer;

This requirement is where many employers lose the administrative exemption. In order to be administratively exempt, the employee has to perform work directly related to assisting with the running or servicing of the business. For example, working on the production line or working as a sales clerk does not satisfy this requirement. Performing work such as finance, accounting, budgeting, auditing, advertising, labor relations, human resources or personnel management is the type of work most often directly related to the management or general business operations of the employer. Think of the person who runs the business, like the office manager, as administratively exempt and the person who carries out the day-to-day affairs, like a sales clerk, as non-exempt.

3. You have a primary duty that includes the exercise of independent judgment with respect to matters of significance.

This requirement considers both the type and importance of work the employee performs. Whether an employee exercises independent judgment depends on whether the employee has the authority to make independent choices without the direction from a supervisor. Even if the employee is subject to review at a higher level, if he or she can make a decision without seeking permission, this satisfies the independent judgment requirement.

Whether something is a matter of significance refers to the importance of the employee’s work. This is not a question of whether an employee’s actions cause financial loss but rather how integral the employee’s work is to the business operations of the employer.

The Professional Exemption

You will be considered a professionally exempt employee if your job duties meet the following requirements:

1. Your primary duties involve advanced knowledge which requires the constant exercise of discretion and judgment.

This requirement distinguishes between intellectual work and manual labor. Work performed by these Professional employees is different than work involving mental, manual, mechanical or physical types of work performed by non-exempt employees. The advanced knowledge required to perform such work can’t be obtained at the high school level and does require additional education and/or training.

“Use of discretion and judgment” is not a bright-line rule but rather a guideline by which the professional exemption is examined. Generally, employees who are on “auto-pilot” and carry out their duties the same way every day do not meet this requirement. Constantly exercising discretion and judgment means decisions are made based on the circumstances presented in a way that requires a course of action be determined based on the particular circumstance.

2. Your advanced knowledge is in a field of science or learning.

Fields that meet this requirement include law, medicine, theology, accounting, actuarial computing, engineering, architecture, teaching, physical, chemical or biological sciences or pharmacy. Certain creative professionals who work in music, writing, acting or graphic arts may also be exempt professionals if their primary duties require invention, imagination, originality or talent in that particular field.

3. Your advanced knowledge was acquired through a prolonged course of education or specialized instruction.

This requirement means you have acquired an advance degree through specialized academic training or through a combination of work experience and instruction.

Computer Employee Exemption

To be classified as an exempt computer employee, you must meet the following requirements:

1. You are employed as one of the following:

• Computer systems analyst
• Computer programmer
• Software engineer
• Other similarly skilled worker in the computer field performing the duties described below

2. Your primary duties (more than 50% of work time) consist of one or more of the following:

• The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications.

• The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.

• The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or a combination of the aforementioned duties, the performance of which requires the same level of skills.

Courts have examined specific job duties of computer employees and determined the following IT/Computer employees are NOT exempt and MUST be paid overtime for hours worked over 40 include:

• Certain IT Help Desk Support Employees

• Employees engaged in the manufacture or repair of computer hardware and related equipment

• Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming

• Employees engaged in installing and upgrading hardware and software

• Employees who configure desktop computers and applications

• Employee who analyze, test and troubleshoot equipment, applications and/or networks

• Employees who correct hardware and software problems and/or deal with network connectivity issues

• Employees who install and maintain telecommunications systems

Outside Sales Exemption

In order to be exempt from overtime pay, an outside sales employee must meet the following requirements:

1. You must “make sales.”

Regulations define “making sales” as sales, exchanges, contracts for sale, shipment for sale or other disposition. Though it seems simple, this aspect of the outside sales exemption is somewhat ambiguous and often causes confusion for both employees and employers.

For example, the Supreme Court recently held that pharmaceutical sales representatives are exempt as outside sales employees even though money is not exchanged. Pharmaceutical representatives don’t actually sell pharmaceuticals – they “provide medical professionals who prescribe pharmaceuticals with the ‘details’ of pharmaceutical products, seeking to educate the prescribers with the ultimate goal of influencing their prescribing decisions.” The Court found that because direct sales of pharmaceuticals by pharmaceutical representatives to patients are prohibited by health industry regulations, the representatives came as close to “making sales” as was contemplated by the FLSA. As such, and because they met the other requirements, they are exempt as outside sales employees.

In another example, a court found that “field representatives” who recruit students to attend private universities were also exempt from overtime as outside sales employees. According to the court, students were purchasing a product by enrolling in the university and because the recruiters were involved with students from recruitment through tuition payments, that was sufficient for the court to find that the recruiters were consummating sales.

In contrast, residential solicitors of charitable donations are not exempt from overtime pay as outside sales employees because soliciting promises of donations or “selling the concept of donating to charity” is not a “sale” within the meaning of the regulations.

2. You must make sales customarily and regularly “away from the Employer’s place(s) of business.”

Employees must make sales away from the employer’s business to be exempt; sales made by mail, telephone or the internet do not fall under the outside sales exemption. Furthermore, sales made from a fixed site, home or office used by the employee as a “headquarters” or site for telephone sales are not “outside sales.” In contrast, sales made by a “traveling salesman” from a hotel room while the employee is traveling or at a trade show may be considered outside sales.

For example, the Department of Labor issued an opinion letter explaining mortgage loan officers are exempt as outside sales employees because they spend a significant amount of time away from the employer’s office selling loan products. The time was spent in the office, or in the home office, doing paperwork or making phone calls was only incidental to the outside sales activities they perform.

CONCLUSION

Knowingly or not, employers sometimes apply the above exemption standards incorrectly. Instead of consulting the law regarding their “What is an exempt employee?” question, they decide on their own, incorporating their own financial bias in the process. As a result, employees who are legally entitled to overtime wages are sometimes denied pay for hours worked over 40 in a week. When employees learn about their rights and realize they have been paid unfairly, they are entitled to seek redress payment for unpaid wages due to them.

If you believe you are improrperly classified as an exempt employees when in fact you should be entitled to overtime pay, consulting an employment attorney can help you sort out the facts and determine your legal position.

If you have questions about exemptions or other issues relating to minimum or overtime wages, contact an attorney at Hawks Quindel for a free, no-obligation conversation about your work situation. Call us at 414-271-8650 or contact us via email.

Summer Murshid

Shareholder at Hawks Quindel, S.C.
Attorney Murshid’s practice focuses largely on federal class action wage litigation, which means she spends the lion’s share of her waking moments making sure she’s doing everything she can to ensure every employer in the great State of Wisconsin pays every employee fairly and legally. Summer devotes the rest of her law practice to litigating on behalf of individual clients who need assistance with a wide range of employment issues.