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What Employees Are Covered By Administrative Overtime Exemption Of The FLSA?

The general rule under the Fair Labor Standards Act (FLSA) for overtime is: All Employees Are Entitled To Overtime.  Under 29 U.S.C. § 207(a)(2), employers must pay employees at least one and one-half times their regular pay rate for all hours over 40 in a workweek.  There are, however, three main exceptions or “exemptions” to this general rule: bona fide executive, administrative, and professional.  The most litigated exemption is the administrative exemption.

Pursuant to the federal regulations, an employee fits within the administrative exemption of the FLSA if the employee is:

  • Compensated on a salary or fee basis at a rate of not less than $455 per week;
  • 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
  • Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

All three requirements must be met to qualify for this exemption.  Moreover, the regulations state that “[a] job title alone is insufficient to establish the exempt status of an employee.”  Therefore, in order to determine whether an employee falls within the administrative exemption, a court will look at an employee’s actual primary job duties.

The phrase ‘directly related to the management or general business operations’ refers to the type of work performed by the employee.  For this requirement the regulations state that “an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished … from working on a manufacturing production line or selling a product in a retail or service establishment.”

Subsection (b) of § 541.201 lists work that is clearly related to the management or general business operations as including: finance; accounting, quality control; purchasing’ procurement; safety and health; personnel management; legal and regulatory compliance.  Administrative work could also include advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.

The employer must also prove that the employee’s primary duty includes “the exercise of discretion and independent judgment with respect to matters of significance.”  Subsection (a) § 541.202 of the federal regulations state that 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.  It generally requires “independent choice, free from immediate direction or supervision.”

The regulations look at:

Whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree … whether the employee has authority to waive or deviate from established policies and procedures without prior approval … whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives … and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.

 

The administrative exemption can be tricky and employers simply do not fully understand the law and improperly classify its office workers.  Damages to these employees include unpaid overtime, liquidated damages, attorneys’ fees and costs.  For information about whether your employer has misclassified you, contact us for a free, quick evaluation.