Who is exempt? Featured

7:00pm EDT January 25, 2005
Since the Department of Labor issued new regulations last year addressing the distinction between exempt and nonexempt employees under the Fair Labor Standards Act (FLSA), an increasing number of employers have been re-examining the classification of certain jobs as overtime exempt.

The new overtime security rules revised both the salary and duty tests for claiming that an employee is exempt from, or ineligible for, overtime pay. They have also dramatically increased the number of workers eligible for overtime by virtually tripling the minimum salary threshold for exemption.

Under the old rules, workers earning as little as $8,060 annually could sometimes be classified as exempt. Under the new rules, workers earning less than $23,650 are guaranteed overtime pay, regardless of their job titles or duties. Many employers have subsequently concluded that jobs once classified as exempt from overtime eligibility must now be reclassified as nonexempt.

In evaluating the executive, administrative and professional duties tests for determining overtime exemption, the following requirements were added or clarified.

Executive duties

The new executive duties test added the condition that an exempt employee has the authority to hire or fire other employees, or that his or her suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

Administrative duties

The new rules specify that an exempt employee's primary duty, not just a portion of the employee's work, must include the exercise of discretion and independent judgment with respect to matters of significance.

For example, in the application of the administrative exemption from overtime, many employers confuse the exercise of discretion and independent judgment with the exercise of skill. These are very difficult analytical concepts.

One could argue that any time an employee performs important office work on which decisions are made, the administrative exemption applies. However, a skilled computer technician who keeps all of a company's hardware maintained and up and running without any supervision does not qualify for the exemption by virtue of these tasks alone, because the tasks of such a position require the exercise of skill, not discretion.

Professional duties

Finally, the new rules clarify that when applying the professional duties test, the "performance of work requiring knowledge of an advanced type" relates to work that is predominately intellectual in character, and includes work that requires the consistent exercise of discretion and judgment. The professional exemption requires, in relevant part, that advanced knowledge be applied on the job.

The fact that an employee may hold a sophisticated advanced degree does not, alone, result in a professional exemption from overtime; it is the tasks of the jobs themselves which control the determination of professional exemption. For example, an employee holding a Ph.D. in chemistry is not necessarily overtime exempt by virtue of that fact alone, if the tasks he or she performs are routine rather than interpretive.

Another common misapplication of the professional exemption involves certified public accountants. A CPA employed in a position performing recurring or routine accounting tasks, such as basic bookkeeping, may not be eligible for the professional exemption, even though he or she holds a CPA certification.

The Department of Labor claims that the new regulations will make the exemptions "much clearer." According to Labor Secretary Janet Chao, the new rules "modernize and clarify what is called 'white collar' overtime regulations that have not been substantially updated since 1949."

Most labor and employment professionals agree that there will be heightened scrutiny by the Department of Labor as to whether employers have properly classified work force positions for overtime purposes. The price for noncompliance with the regulations can be enormous, including up to two years of overtime back pay or, in the case of willful violation, as much as three years of back pay for overtime.

Employers cannot use a lack of accurate recordkeeping as an excuse. In such cases, overtime will be based primarily on the number of hours an employee claims he or she worked in a work week. Without accurate records to dispute these claims, a noncompliant employer may find itself facing a staggering liability.

Employers who are educated about how these new rules affect their work force will be the most successful organizationally and financially, and can help to stem unnecessary labor and employment problems.

Gina M. Ameci, Esquire, a shareholder in Buchanan Ingersoll's Philadelphia office, is a member of the firm's Labor & Employment Law Group. With more than 20 years experience in government, corporate and private practice, she brings a unique perspective to employment issues. For more information on labor and employment legal matters, reach her at (215) 665-3804 or amecigm@bipc.com.