On some of the blog posts I have written I get questions from readers as individual employees and not HR representatives. Generally these are questions by people who feel they are being incorrectly paid or unfairly treated in their position. Many of them start off with “I am an exempt employee, but…” They then go on to describe their situation. Many times I wonder, based on what they have said, if they are really exempt employees. I think many think they are exempt or have been told so because they are paid on a salary basis. The reality is that FLSA exemptions are primarily about duties.
There are several key ingredients in determining whether someone is an exempt employee or not. First there is the salary test. Are they paid on a salary basis? Is that salary at least $455 per week? None of those are particularly difficult hurdles to pass. Even though the answer to both of those may be “yes” that is not sufficient to declare the employee exempt. In fact the salary test can be messed up considerably if improper deductions are taken. You can read more about that here. The big test is the primary duty performed by the employee.
I am going to use the administrative exemption to make my point because it is one of the more difficult tests to pass. What is the primary duty of someone claimed to be exempt under the administrative exemption? According to the FLSA it is:
“..the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and includes the exercise of discretion and independent judgment with respect to matters of significance.”
Is that clear cut enough for you? No, I didn’t think so. The USDOL didn’t think so either so they provided guidance.
Directly related to management or general business operations
This requirement means an employee must perform work directly related to assisting with the running or servicing of the business. It cannot mean working on a production line, or selling product, or performing customer service. To the USDOL this includes, but is not limited to:
“…work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, Internet and database administration; legal and regulatory compliance; and similar activities.”
However, just because you work in one of these areas does not mean you automatically qualify for the exemption. There is another piece to this puzzle.
Discretion and independent judgment
The next piece for qualifying is the exercise of discretion and independent judgment. Generally this involves “the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The term must be applied in the light of all the facts involved in the employee’s particular employment situation, and implies that the employee has authority to make an independent choice, free from immediate direction or supervision.”
The exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources. It will include factors such as:
- Whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices;
- Whether the employee carries out major assignments in conducting the operations of the business;
- Whether the employee performs work that affects business operations to a substantial degree;
- Whether the employee has authority to commit the employer in matters that have significant financial impact;
- Whether the employee has authority to waive or deviate from established policies and procedures without prior approval.
This work can be subject to review and approval but it is not micromanaged.
Matters of Significance
The last piece of this puzzle is that what the employee is deciding about and using their discretion on must be a “matter of significance.” Financial loss is not sufficient to be a matter of significance. Any employee ruining a piece of machinery can cause the company a significant financial loss but that would not qualify as a matter of significance.
Types of jobs
Some of the jobs that might be deemed to be exempt under the administrative exemption include:
- Some insurance claim adjustors if their duties include: Interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation.
- Human resources managers who formulate, interpret or implement employment policies generally meet the administrative duties requirements.
- Executive assistant or administrative assistant to a business owner or senior executive of a large business who has been delegated authority regarding matters of significance
- Management consultants who study the operations of a business and propose changes in organization.
This is not a complete listing by any means. But it gives you an idea of what needs to be considered when determining is an employee is considered exempt or not.