Articles Posted in Salaried Employees

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What happens when a company classifies its employees as salaried, exempt from overtime but then deducts or docks from the employees’ pay for things like sickness, disability, or personal leave?  Can this deduction change an exempt employee to a non-exempt employee?  The short answer is “yes.”  The rule of thumb under the Fair Labor Standards Act (“FLSA”) is that the regulations do not permit an employer to dock pay from a salaried, exempt employee.  Doing so, can cause an entire class of employees to suddenly go from exempt to non-exempt and thus, entitled to overtime.  As always, however, there are exceptions to the rule.

To understand the discussion on docking an employee’s pay, you have to start with the basics of the FLSA.  To qualify for the administrative, executive and professional exemptions under the FLSA, the employer must pay the employees at least $455 per week on a salary or fee basis.   An employee is paid on a salary basis if:

  • The employer compensates the employee a predetermined amount each pay period on a weekly or less frequent basis, which makes up all or part of the employee’s compensation;
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Recently, a United States federal district court granted employees’ request for conditional certification in an overtime case filed by assistant store managers (“ASM”). The ASM filed an overtime collective action alleging that Burlington Coat Factory failed to pay them overtime wages for the hours they worked over 40 in a workweek. The ASM asserted that their employer misclassified these salaried employees as exempt from overtime but, in fact, the ASM were nonexempt and entitled to overtime. The employees sought permission to send notice about the lawsuit to all other similarly situated employees so that they could join.

The Fair Labor Standards Act (“FLSA”) requires employers to pay its employees overtime pay for all hours worked over 40 in a workweek. There are some exemptions to the FLSA overtime rules, including an exemption for executives. However, although the ASM in the Burlington case were called “managers,” they argued that they were entitled overtime because their job requires little skill and their duties and responsibilities do not include any real managerial responsibilities or the exercise of independent judgment. The managers also argued that they did not have authority to hire or fire other employee and that they spent the majority of their time performing work typical of the other employees like working on the sales floor, opening boxes, ticketing merchandise, stocking shelves, cashiering, unloading trucks, and cleaning the bathrooms.

The federal district court hearing the case agreed with the ASM to conditional certify the overtime case as a collective action pursuant to the United States Supreme Court case Hoffman v. La Roche as well as the legislative purpose of Section 216 of the FLSA. This means that the employees will be permitted to send notice of the lawsuit to other managers about their rights to join the lawsuit and seek their overtime pay.
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BLOG-Photo-Bank.jpgThe First Republic Bank is paying over $1 million in overtime pay to 392 bank employees who were wrongly classified as exempt from overtime. The employees are a mix of bank administrative and professional employees whose job duties do not meet the Fair Labor Standards Act’s (“FLSA”) exemptions from overtime. The bank employees in California, Connecticut, Massachusetts, New York, and Oregon are entitled to one and one-half times their regular rate for all hours worked over 40 in a workweek making the bank pay out over $1 million in back wages.

The FLSA provides exemptions to overtime for some types of employees, i.e. outside sales, bona fide executive, administrative, and professional. However, employers regularly misclassified salaried employees as exempt when the employees do not actually met the exempt tests set out by the FLSA regulations. In order to determine whether a salaried employee is exempt from overtime is based on the employee’s job duties – not their job title.

The bank was also found to be in violation of the FLSA’s regulations that require employers to count bonus payments when calculating an employee’s overtime pay. In order to calculate overtime, an employer must calculate an employee’s regular rate – essentially, their hourly rate. However, the employer must include bonus payments, commissions, and incentive pay when determining this hourly rate which would raise the hourly overtime rate for non-exempt employees.