FLSA: Exempt or Not Exempt, That is the Question

Columbia SHRM presents …

FLSA: Exempt or Not Exempt, That is the Question

April 19, 2012

David DubberlyCertified Specialist in Employment and Labor Law

A Dramatic Question

“To be [exempt] or not to be [exempt], that is the question [for HR Managers].”

[With apologies to] William Shakespeare

Overview

• FLSA review and enforcement trends• “White collar” exemptions

– Executive employees– Administrative employees– Professional employees– Computer employees– Outside sales employees

• Salary basis rule and safe harbor– Business owners– Highly compensated employees

FLSA History

• Enacted in 1938

• Can be tough to apply to modern work practices

– Telecommuting

– Flexible hours

– Use of smartphones outside work

Main Provisions

• Minimum wage

• Overtime pay

– Exemptions—mostly for “white collar” employees

• Focus of most FLSA litigation

• Regulations updated 2004

• Youth employment

• Recordkeeping

Enforcement

• WHD– Investigations– Lawsuits

• Injunctive relief• Back wages and liquidated damages

• Private Lawsuits– Back wages, liquidated damages, attorney’s fees, and costs– Collective actions

• DOJ– Criminal prosecution and civil money penalties

WHD Getting More Aggressive

• 350 more investigators since 2009

• 13,500 more investigations since 2009

WHD Getting More Aggressive

• DOL-ABA “Bridge to Justice” referral program• DOL “apps” for smart phones

– Timesheet app» Can provide evidence for FLSA lawsuit» But time recorded on app may be inaccurate

– Eat Shop Sleep app» DOL: “Access hotel/motel, restaurant and retail

industry enforcement data and easily identify violators”

– iCitizen Labor Report app» Adds OSHA data

WHD Getting More Agressive

• Investigation information on internet at http://ogesdw.dol.gov– MSHA, OSHA, EBSA, OFCCP, and WHD

– On WHD:

• Employer names and addresses

• Back wage amount

• Employees due back wages

• Penalties

Private Lawsuits Continue to Increase

• 2011 FLSA suits in federal court = 7,000

• Approx. 200 class actions

• In 10 years, 300% increase in FLSA suits v. 1% increase in all suits

• Frequent complaints:

Misclassifying employees as exempt

Improper deductions from exempt employees’ salaries

Executive Employees

• Pay: salary basis at least $455/week ($23,600/year)• Management: primary duty is management of

business or customarily recognized department or subdivision

– Setting and adjusting employee pay and hours

– Maintaining production or sales records

– Evaluating employee performance

– Handling employee complaints and grievances

Executive Employees

• Supervision: customarily and regularly supervises work of two or more other employees in department

• Authority: hires or fires other employees

– Or recommendations as to hiring, firing, or other status changes given particular weight

Jobs that May Qualify*

Plant manager

Department supervisor

Store manager

Construction project superintendent

*Depending on facts—job title alone insufficient to establish status

Jobs that Typically Don’t Qualify*

Working foreman

Relief supervisor

Store “manager” who spends only small part of time on exempt work

Case Study: Gooden v. Dolgencorp Inc. and Thomas v. Dolgencorp Inc.

• Decided Apr. 3, 2012 by federal court in SC• Two DG store managers covered by executive

exemption• Primary duties were managerial

– Hiring, supervising, and disciplining employees – Promoting, demoting, and firing employees– Providing training and setting and adjusting work

schedules– Delegating and prioritizing tasks and assignments

Case Study: Gooden v. Dolgencorp Inc. and Thomas v. Dolgencorp Inc.

• Spent over 50% of time on these managerial duties• These duties important to ensure success of stores• Mostly exercised discretion in performing these

duties– Not overly limited by district managers or SOP

• Paid more than nonexempt employees– And could earn bonuses based on store

profitability

 Salary Basis

 • No reduction in pay for variations in quality or

quantity of work– Can reduce paid sick or personal leave time

• Pay of full salary for any week in which any work performed, regardless of number of days or hours worked– Don’t have to pay for any week in which no work

performed

Permitted Deductions

• Absence for one or more full day for personal reasons other than sickness or disability

• Absence for one or more full days for sickness or disability if employee is covered under sick leave policy

• Offset equal to amount received for jury fees, witness fees, or military pay

Permitted Deductions

• Penalties imposed in good faith for violating safety rules of major significance

• Unpaid disciplinary suspension of one or more full days imposed in good faith for violation of written workplace conduct rules

• Partial workweek during first or last week of work

• Unpaid FMLA leave

Safe Harbor Policy

• Exemption not lost over salary basis if:– Clearly communicated policy prohibiting

improper deductions with complaint mechanism

– Reimburse employees for improper deductions

– Good faith commitment to comply• Not available if employer willfully

violates policy by continuing to make improper deductions after complaints

Business Owners

• Own at least a “bona fide” 20% equity interest in business where works

• Actively engaged in management of business

• Salary level and salary basis requirements don’t apply

• No duties test

Highly Compensated Employees

• Pay: total annual compensation of at least $100,000/year

– At least $455/week paid on salary basis

– Including commissions, non-discretionary bonuses, and other non-discretionary compensation

– Excluding cost of benefits

Highly Compensated Employees

• Duties: customarily and regularly performs at least one exempt duty of an EAP employee

– Primary duty includes performing office or non-manual work

Administrative Employees

• Pay: salary or fee basis at least $455/week ($23,600/year)

• Duties: primary duty is – Performance of office or non-manual work– Directly related to management or general

operations of employer or employer’s customers

Administrative Employees

• Discretion: primary duty includes exercise of discretion and independent judgment with respect to matters of significance

– Exercise of discretion and independent judgment = comparing and evaluating possible courses of conduct, and acting or making decision after various possibilities considered

Jobs that May Qualify*

• Insurance claims adjuster• Certain financial industry

employees• Team leader for major

projects• Administrative assistant to

senior executive• HR manager• Purchasing agent

Jobs that Typically Don’t Qualify*

• Inspector• Examiner/grader• Comparison shopper• Personnel clerk• Mortgage loan officers

Case Study: Foster v. Nationwide Mutual Insurance Co.

• Decided Jan. 5, 2012 by federal court in OH• 91 “special investigators” administratively exempt• Primary duty was conducting investigations to

resolve indicators of fraud in suspicious claims– Interviewed witnesses–Gathered information–Recommended and sometimes supervised

vendors

Case Study: Foster v. Nationwide Mutual Insurance Co.

• Involved exercise of discretion and independent judgment – Used “experience and knowledge … to distinguish

relevant from irrelevant, fact from untruth, to resolve competing versions of events”

– Had “nearly unilateral discretion” in referring cases with unresolved fraud indicators to law enforcement

• Related to matters of significance– Helped determine if claims paid or not

Learned Professional Employees

• Pay: salary or fee basis (some professionals exempt from this) at least $455/week ($23,600/year)

• Duties: primary duty is performance of work requiring advanced knowledge– Work must be predominantly intellectual and require

consistent exercise of discretion and judgment– Advanced knowledge must be in field of science or

learning customarily acquired by prolonged course of specialized intellectual instruction

Jobs that Typically Qualify*

• Medical doctor, osteopathic physician, podiatrist, dentist, optometrist

• Registered nurse• Certified medical

technologist• Dental hygienist• Certified physician

assistant• Pharmacist

• Lawyer• Engineer• Teacher • Accountant • Executive chef, sous chef• Certified athletic trainer

Jobs that Typically Don’t Qualify*

• Licensed practical nurse

• Nurse aide

• Paramedic

• Paralegal, legal assistant

• Engineering technician

• Accounting clerk, bookkeeper

• Cook

Creative Professional Employees

• Pay: salary or fee basis (film industry employees exempt from this) at least $455/week ($23,600/year)

• Duties: primary duty is performance of work requiring invention, imagination, originality, or talent in recognized field of artistic or creative endeavor

Jobs

Typically Qualify*• Musician, composer,

conductor, soloist• Novelist, play writer• Writer for ad agency• Actor• Painter, photographer• Investigative news reporter

Typically Don’t*• Beat reporter

Computer Employees

(Other than those qualifying for EAP exemptions)

• Pay– At least $27.63/hour for every hour worked, including overtime, or

– Salary or fee basis at least $455/week ($23,600/year)

• Duties– Apply systems analysis techniques,– Design, document, analyze, create, or modify computer systems

or programs, or– Modify computer programs

Jobs

Typically Qualify*• Computer systems analyst• Most computer

programmers

Typically Don’t*• Entry level

programmers• Computer

manufacture and repair

• CAD operators• Help desk workers

Outside Sales Employees

• Pay: no requirement on basis or amount

• Duties: primary duty must be making sales or obtaining orders or contracts for services or use of facilities, and

• Location: customarily and regularly engaged

away from employer’s place of business

Jobs that Typically Qualify*

• Most sales reps• Pharma sales rep case heard by U.S.

Supreme Court on Apr. 16, 2012 (Christopher v. SmithKlineBeecham Corp. d/b/a GlaxoSmithKline)

• Some real estate agents

Common Errors to Avoid

• Assuming all employees paid salary are exempt• Improperly applying exemption• Making improper deductions from salary• Job descriptions and employee handbook

not up to date

Questions/Comments?

David Dubberly803-253-8281

[email protected]