By Toni S. Locklear and Robert E. Lewis
The Fair Labor Standards Act (FLSA)
includes provisions that regulate minimum wage, overtime pay, child labor, and
record-keeping requirements. State wage and hour laws also exist and generally
regulate meal and rest breaks, discharge notices, and how pay is settled upon
discharge.
While all provisions of wage-hour
law are of interest to employers, one crucial provision generates the most discussion
and confusion – determining a job’s “exemption” status. Employers want – and
need – to ensure they have appropriately classified their positions under the
FLSA’s guidelines.
What does it mean to be an
“exempt” employee?
Exempt status means the employee
is not covered by the FLSA and is, therefore, deprived of the law’s
minimum wage and overtime pay protections.
The FLSA assumes all workers are
eligible for overtime pay, but allows companies to exempt some jobs. There is
no requirement that a company classify any job as exempt. Jobs are by definition not exempt (“non-exempt”)
unless the organization chooses to claim an exemption. Because claiming an exemption is voluntary,
employers bear the burden of proof and therefore must create documentation that
justifies the claim for exemption.
What kind of jobs can be
classified as exempt?
The FLSA allows companies to
exempt certain jobs based on the specific work done in those jobs. The five
exemptions are the Executive, Administrative, Professional, Computer
Professional, and Outside Sales exemptions. Exemption is based on employee compensation
(“salary level test”) and job duties (“duties test”). In general, the “duties
test” requires that jobs exercise significant discretion, independent judgment,
and authority over decisions to be classified as exempt. Other criteria may be
specific to a given exemption.
As an example, the following
tests must be met for a job to qualify for the Executive Exemption.
1.
Employee is compensated at a rate of at least
$455 per week
2.
Employee’s primary duty is managing the
enterprise, or a recognized department or subdivision
3.
Employee regularly directs the work of 2 or more
FT employees (or the equivalent)
4.
Employee has the authority to hire or fire, or
their recommendations are given particular weight
Although many employers believe
paying a position on a salary basis or labeling it a “manager” job qualifies it
as exempt from wage-hour law that is not sufficient!
What
are the risks to an employer who incorrectly classifies a position as exempt?
Incorrectly classifying employees can bring severe
penalties for employers. Wage and hour actions are considered by attorneys to
be the #1 area of monetary exposure for companies. Employers paid out a total
of $2.7 billion in wage-hour settlements in the 2007-2012 time frame with
settlements totaling $467 million in 2012 alone.
Why is it so difficult to determine
exemption status?
Struggles with wage-hour law are
commonplace for a number of reasons.
First, the FLSA requires that exemptions occur on an individual basis
(technically a “job” is not exempt, the people who perform it are) and be based
on an examination of the work as it is actually done (not on the basis of a job
description or manager’s opinion). Since exemption status is determined on individual
basis, it is challenging to ensure that each and every position is classified
correctly.
Another struggle with FLSA
exemptions is rooted in the changing nature of work. To gain efficiencies during the economic
downturn, some employers reduced staffing levels to a point where managers increasingly
engage in “non-managerial” activities. By doing so, companies may have unwittingly
changed the exemption status of their employees.
Companies also struggle to interpret
the federal and state requirements. Because
they are intended to apply to a wide variety of jobs, the regulations are
generally written vaguely. Disputes over
what constitutes “discretion”, “work time”, and “authority” are common.
So,
what’s an employer to do?
Effectively managing exemption
decisions can be accomplished via several approaches. These include regularly auditing wage-hour
policies and job status, training managers on managing overtime and meal
breaks, and rigorous job analyses.
Job analysis is the most
rigorous, data-oriented, and defensible method of determining and managing
exemption classification decisions. Job
analysis facilitates resolving wage-hour issues because it utilizes input from
the incumbents who do the work and assesses critical job components such as the
frequency and importance of work activities and the level of discretion and
autonomy exercised.
How do I use job analysis to
document work requirements for exemption purposes?
Using job analysis to limit wage-hour
exemption risk requires several steps.
First, identify the jobs
that present the most wage-hour risk for your organization.
Next, collect job data by
developing a comprehensive list of work activities and competencies with the
assistance of job experts, and, determining the information you need to know
about each work activity and competency. It is common in job analysis to assess
what work is done (e.g., how
frequently tasks are performed and how important tasks are). For wage-hour purposes, it is also critical
to assess how work is done (e.g.,
whether procedures must be followed) and when
work is done (e.g., during meal breaks).
Once activities and rating scales are determined, the next step is to
administer the survey to job incumbents.
Finally, analyze survey data relative
to the applicable exemption test.
Means and standard deviations are the first statistics to calculate, and
it may be important to analyze work activities deemed exempt separately from
those deemed non-exempt. Mean ratings
will indicate generally how incumbents view a work activity or competency
whereas standard deviations will indicate the level of agreement among the job
experts. These analyses will directly
feed job descriptions that can be used to illustrate exemption status as well
as to recruit and manage performance.
Summary
Managing the risk associated with wage-hour decisions requires
knowing the target job. A well-designed and well conducted job analysis
supplies all of the information needed to understand the job and accurately
define exemption status.
References
Fulbright & Jaworski, LLP. (2013). Fulbright’s 9th annual litigation trends survey
report.
Maatman, G. L., Jr. (2013). Annual workplace class action litigation
report: 2013 edition. Chicago, IL: Seyfarth Shaw
Martin, D, Plancich, S., & McIntosh, J.
(2013, March 12). Trends in wage and hour
settlements: 2012 update. NERA: New
York, NY.
