Question

I’ve been asked to review several higher-level job titles to be sure we have them properly classified under the Fair Labor Standards Act (FLSA).  I have done the research, but I am still not confident I am classifying employees properly.  Can you give me a rundown of the types of exemptions and what I should be careful of?

Answer

Enforcement efforts by the US Department of Labor and the Massachusetts Attorney General’s Fair Labor Division have led to the recovery of hundreds of millions of dollars in unpaid wages across the commonwealth and across the country.

Every HR professional knows that misclassification of employees under the FLSA can be a costly mistake. To help employers minimize the risk going forward, and/or get ahead of potential misclassification issues, we have identified some of the most common mistakes that employers make when classifying their workers as “exempt.”

The Fair Labor Standards Act (FLSA) was adopted in 1938. While establishing the minimum wage and overtime pay (1.5 times employees base wage) and regulating child labor, it established the requirement that all employees be classified as either “exempt” or “non-exempt” from the FLSA’s minimum-wage and overtime provisions.

Non-exempt employees in Massachusetts must be paid a minimum wage of at least $15 per hour.  Federal and state law require that non-exempt employees be paid overtime for every hour worked beyond 40 hours in a workweek. There are strict record-keeping requirements to document the hours worked by a non-exempt employee.

Exempt employees, assuming they are properly classified, are not entitled to overtime pay.  There are six categories of exempt classification. They include executive, professional (learned and creative), administrative, outside sales, computer employee and highly compensated. To qualify as exempt, the employer must be able to meet three specific tests. The employee must:

• be paid on a salary basis (weekly, biweekly, or monthly),
• be paid at least $684 a week ($35,568 annually), and
• perform the duties as defined by law for the applicable exemption.

The potential FLSA landmines an employer may step on include the following:

Assuming salaried means exempt 

A common misconception is that employees who are paid on a salary basis automatically qualify for an FLSA exemption. While paying employees on a salary basis and paying at least $684 per week are easy bars to overcome, it is the duties test for the different classifications that is fundamental and where most employers make mistakes.

Any time an employer is developing a new job description or significantly changing an existing one it is crucial to review the enumerated duties to ensure that the position remains exempt or must be reclassified.

The danger of relying on titles

Never look to the title, always look to the duties. Any analysis that stops at the job title and assumes that that title justifies exempt classification is courting danger. The duties-test analysis looks to the actual work performed by the employee as a guidepost making the proper decision. Any employee whose primary duties do not satisfy one of the applicable duties tests will not qualify for an exemption.

Assuming that all “administrative” positions qualify for the Administrative Exemption

Please see accompanying article for detailed discussion of this issue.

Assuming that all supervisors qualify for the Executive Exemption

Someone is given the title project manager but does not actually supervise any employees. The business would fail on the executive exemption for that position because the exemption requires the person to supervise two or more full-time employees or their equivalent (four part-time employees for example) and have the authority to make hiring and firing decisions (including when the manager’s hiring and firing recommendations are accorded particular weight by the company decision maker).

Assuming that all employees who work with computers qualify for the Computer Employee Exemption

In many workplaces every employee works with a computer. That does not make them eligible for the computer employee exemption. To qualify, an employee’s primary duties must include:

• application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;
• design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
• design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
• some combination of these criteria.

Anything less than that and the employer runs the risk of being accused of misclassification.

Relying on incidental or occasional duties to make classification determinations

What happens when your employee performs both exempt and non-exempt work? Employers need to be able to explain what is the employee’s “primary duty.” Keywords to keep in mind to help you define primary duty include what is the principal, main, major, or most important duty that the employee performs? While it will usually consume 50% or more of the employee’s time, there are cases where employees have been successfully classified as exempt and their duties do not entail 50% of the work time, but they are few and far between.

Failing to consider state law

State laws in Massachusetts do not vary significantly from federal employee classification laws. In Massachusetts the bigger concern has to do with remedies for misclassification. The state provides a private right of action – if the Attorney General’s office does not pursue the legal claim an individual may pursue that legal claim on their own. If the individual prevails, they may be awarded treble damages plus attorney’s fees.

AIM members with questions about this or any other human-resource issue may call the AIM helpline at 1-800-470-6277