Can an Exempt Employee Be Paid an Hourly Rate?
An exempt employee under the FLSA is an employee that falls within one of the statutorily defined exemptions and is not entitled to overtime pay. It is the statutory definitions that will govern how an employer classifies the employee. The answer will depend on whether you are paid hourly or not. Exempt employees are paid a predetermined salary, not at an hourly rate.
There are a few common misperceptions held by employers that fall into FLSA. The most prominent is the belief that a salaried “managerial” employee is automatically exempt under the FLSA and is therefore not entitled to overtime pay for working more than 40 hours in a given work-week.
The exemption that gives most employers difficulty is the white-collar exemption. This is because often times “managerial” employees that presumably fall within this category truly do not when one really understands that person's day-to-day job responsibilities. It is critical to note that it is generally irrelevant how the employer characterizes the employee; the determining factor is the employee's particular job functions.
White-collar exemptions generally apply to employees that are paid on a salary basis and frequently exercise discretion and independent judgment in performing their job duties. The classification is based on the employee's actual job responsibilities and duties, not the nature of the employer's business, the employee's job title or another group classification.
There are three categories that fall under the white-collar exemption: executive exemption, administrative exemption and professional exemption. FSLA delineates two tests, the "short test" and the "long test," that are used to determine whether an employee falls under one of the three white-collar exemptions. Descriptions of the short test, which generally are used, are as follows:
a) Executive Exemption. The employee is paid a salary of at least $250 per week, his/her work consists mainly of the management of the business or a department of the business and he/she regularly supervises and directs at least two individual employees in his/her department. Examples of employees who typically fall under the executive exemption include CEOs, CFOs, presidents, vice presidents and project managers.
b) Administrative Exemption. The employee is paid a salary of at least $250 per week and his/her work is described as "office" or "nonmanual." He/she is directly involved in either management policy or the general operations of the company or its customers and his/her work calls for the exercise of discretion or independent judgment. Employees who typically fall under the administrative exemption include executive assistants, assistant managers, consultants and personnel directors.
c) Professional Exemption. The employee is paid a salary of at least $250 per week, the majority of his/her work either consists of performing tasks in an advanced field of learning, teaching or science and requires consistent use of discretion or judgment, or his/her work is in a field of artistic endeavor. Examples of employees who typically fall under the professional exemption include certified public accountants, lawyers, engineers and biologists.
Under the "long test," for the above exemptions, an employee who earns slightly less than those described above may still be exempt if he/she meets the other short test criteria, regularly exercises discretion and authority, and devotes at least 80 percent of his/her time to "non-exempt tasks."
As stated above, there are other exemptions that the FLSA recognizes, but the white-collar exemption seems to give employers most o f the problems. The difficulty that is raised by the white-collar exemption is that many companies have employees that fall into what might be described as a “grey zone.” For example, under the executive exemption referenced above, if an organization is small or if its departments are small working units and the company experiences a significant percentage of turnover, one of the department managers may not be supervising two or more employees on a regular basis. In fact, the salaried department manager may be handling significantly more clerical duties and is supervising employees less simply due to the needs of the company. Thus, although a “manager” is a salaried employee that is presumably not entitled to overtime, the Department of Labor may not find that the “manager” falls within the exemption because that person is really not supervising two or more employees for any significant period of time. Keeping the above-referenced mathematical formula in mind regarding the exposure to the employer, a “manager” who makes $80,000 a year and works 60 hours a week can create tremendous financial exposure for a company.
The administrative exemption can be a minefield for certain companies. To qualify for this exemption, employees must be primarily involved in the “general operations” of the business and should exercise “discretion” and “independent judgment” in their position. These are vague and ambiguous terms that may not work for many types of salaried employees. For example, a payroll “manager” at a large corporation who is entrusted with handling the payroll for hundreds of employees may seemingly fit within this exemption. However, when an analysis of the person's day-to-day responsibilities is done, one finds that the payroll “manager” is merely administering the payroll checks for all employees, makes no decisions without the consent and approval of upper management and has no input how the payroll account is administered. Thus, in reality, this person's position, while important, may not fall within the administrative exemption.
What about an assistant “manager” whose supervisor is an extremely hands-on type of person who does not allow his assistant managers to have any free reign or discretion in how they handle their job tasks or how they supervise their people? Under these facts, the assistant “manager” is really relegated to the role of merely carrying out the wishes of his or her supervisor. A Department of Labor auditor may deem that this person's job responsibilities are more clerical in nature and, thus, the company may need to start paying that person overtime.
How about the human resources director for a large sales organization that ostensibly has wide discretion in how she does her job? She may seemingly fit perfectly into the administrative exemption category. However, when one looks at her day-to-day responsibilities, one learns that she is required to bring all personnel-related decisions to the company's executive vice-president who makes all final decisions. She has little to no input in any human resources related issues. Her primary role is simply to keep the personnel files in order when employees are hired or fired. Thus, the human resources director's primary job responsibilities are really no more than clerical in nature, with not autonomy or discretion in how she does her job.
The professional exemption is less prone to interpretation and subjectivity and, accordingly, does not give most companies too many problems.
Nevertheless, as is clear with all of the above examples, the question of the white-collar exemption is very fact-intensive and will vary from position to position and company to company. Clearly, there are some guidelines that a company can follow to minimize the risk of exposing itself to an FLSA overtime claim. One of the main things that companies can due is to re-examine the classifications of all of their employees on a periodic basis and truly assess the exempt personnel's day-to-day job responsibilities to make sure that they fit within one of the above tests. Many times, due to turnover, changes in corporate culture or acquisitions and mergers, the dynamics of exempt positions within companies changes over time.