Wage and Hour: Major Exemptions to Overtime Obligations Michigan Chamber of Commerce Webinar: October 19, 2010

BODMAN LLP Donald H. Scharg 201 W. Big Beaver Road, Suite 500 Troy, MI 48084 (248) 743-6024 [email protected]

Have You Seen These Recent Headlines? “Longtime Denny's Employee Files OT Suit ” “Class Cert. Granted In Health Temp Agency FLSA Suit” “Former Service Manager Hits Goodyear With OT Action” “Plaintiffs Lawyers to Earn Up to $28M in Risky WalMart Wage & Hour Litigation” [email protected];http://www.abajournal.com/news/article/plaintiff _lawyers_earn_up_to _28m_in_risky_wal-mart_wage_hour_litigation

What Industry Are You In?









Sales Manufacturing Retail Service Food or Hotel Construction (including Architectural or Engineering) Health Care Professional

1

How Many Employees Are Employed By Your Company?








1-20 21-49 50-99 100-299 300-500 501-1000 1001+

Is Your Company:




Union




Non-Union




Mixed

Basic Overtime Rules







FLSA applies to hourly and salaried employees No limit on number of daily or weekly hours Unless exemption: – Overtime of 1½ times employee’s regular rate for all hours worked in a workweek in excess of 40 hours – Each work week stands alone – No averaging of hours over 2 or more weeks – No comp time for hourly employees Employers may agree to pay overtime more liberally

2

Unauthorized Overtime








Employers cannot simply tell non-exempt employees not to work overtime and not pay overtime if it is performed (i.e., “suffer or permit to work”). If the employer knows or has reason to know employee is working, even without permission, the time must be paid. Discipline issue – If employee is seen working unpaid overtime, tell to leave and discipline. – If employee is seen working during unpaid lunch, tell employee stop and discipline.

White Collar Exemptions From Overtime – Most Common








Executive (29 C.F.R. 541.100) Administrative (29 C.F.R. 541.200) Professional (29 C.F.R. 541.300, 301) Outside Sales (29 C.F.R. 541.500) Certain Computer Employees (29 C.F.R. 541.400) Executive or Administrative Computer Employees (29 C.F.R. 541.402) Highly Paid Individuals (29 C.F.R. 541.601)

Salary Basis








Predetermined amount of compensation each pay period  Salary plus commission qualifies IF minimum salary requirement is guaranteed  Salary level to qualify for exempt status: $455/week or $23,660/year No reductions of pay because of variations in quality or quantity of employee’s work Bona fide sick pay policy (at least 5 days) No pay required for workweek in which no work is performed Deductions limited to those allowed by FLSA

29 C.F.R. 600-602

3

Fee-Based Pay May Also Qualify


Administrative and Professional Employees may be paid on a “fee basis” rather than a salary basis   




Paid agreed sum for single job, regardless of the time required for completion Generally paid for unique job, rather than for a series of jobs repeated a number of times To meet salary test, consider time spent and amount paid

WARNING: Combination of fees and hourly compensation do not qualify as fee basis AND defeats exemption Elwell v. University Hospital Home Health Care Services, 76 F. Supp. 2d 832 6th Cir. 2002); 29 C.F.R. 541.605(a)

No Salary Pay-Docking Rule






No deductions made for absences (less than a full week) occasioned by the employer or by the operating requirements No deductions for partial days missed for sickness or personal reasons No deduction or repayment for the cost of lost or damaged tools or equipment or restitution, fines, settlements, or judgments based on the misconduct of an employee

29 CFR 541.602

Improper Deductions: Exemptions Can Be Lost


Employers found to have a practice of making improper deductions, can lose the exemption during the entire time period of policy.




If practice of deductions, exemption will be lost for all employees in the same job classification, working for the same manager.




Failure to reimburse for isolated or inadvertent improper deductions.




Catastrophic results – owe overtime




DOL Opinion Letters allow deductions to recoup loans and mistaken overpayments

29 C.F.R. 541.603

4

Seven Exceptions From The “No Pay-docking” Rule


Absence from work for one or more full days for personal reasons, other than sickness or disability




Absence from work for one or more full days due to sickness or disability after the employee has exhausted leave under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences




Offsetting any amounts received as payment for jury fees, witness fees, or military pay, loans, overpayments

Seven Exceptions From The “No Paydocking” Rule (con’t)


Penalties imposed in good faith for violating safety rules of “major significance”




Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of workplace conduct rules




Proportionate part of an employee’s full salary may be paid for time actually worked in the first and last weeks of employment




Unpaid leave taken pursuant to the Family and Medical Leave Act

Safe Harbor Provision (29 CFR 541.603(d))


A “safe harbor” against loss of exemption for inadvertently making improper deductions from wages of exempt employees.




Employers must have a clearly communicated policy that: * Prohibits the improper pay deductions specified in §541.602(a); * Includes a complaint mechanism; and * Reimburses employees for any improper deductions; and * Makes a good faith commitment to comply in the future.




Distribution of the policy to employees before improper deductions are made.

5

Have You Had Any Employees Question Their Exempt Status?




1. Yes




2. No

If The Answer To The Preceding Question Is Yes, How Was The Claim Resolved?







1. Department of Labor investigation 2. Settled 3. Litigation in which we won 4. Litigation in which we lost 5. Not pursued by employee 6. Other

Executive Exemption: Duties







Primary Duty: management of the company or a department or subdivision of the company, Direct 2 or more employees, Have authority to hire or fire – or make recommendations regarding employment status are given particular weight, AND Meet the salary requirements for exemption

29 C.F.R. 541.100

6

Primary Duty



“Primary duty” means the principal, main, major or most important duty that the employee performs. Factors in determining “primary duty” include:    

relative importance of the exempt duties as compared with other types of duties; amount of time spent performing exempt work; employee’s relative freedom from direct supervision; relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.

29 C.F.R. 541.700(a)

Examples of Management Duties









Interviewing Selecting Training Setting/adjusting pay rates and hours of work Directing work Appraise/Recommend promotions Handle complaints/grievances Discipline











Maintaining production Planning work Determine techniques Assigning work Control flow and distribution Provide safe and secure workplace Plan/control budget Monitor/implement legal compliance measures

Suggestions & Recommendations Are Given Weight






Part of the employee’s job duties to make such suggestions and recommendations; The frequency with which such suggestions and recommendations are made or requested; The frequency with which the employee’s suggestions and recommendations are relied upon; More than an occasional suggestion with regard to the change in status of a co-worker; Does not have authority to make the ultimate decision as to the employee’s change in status.

7

Business Owner (Executive)





Employed in a “Bona Fide” Executive Capacity Owns At Least a Bona Fide 20% Equity Interest in the Employing Enterprise Actively Engaged in the Management of the Business SALARY REQUIREMENTS DO NOT APPLY

29 CFR 541.101

White Collar Exemption Administrative


Primary duty must be the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers;  




Work that affects business operations to a substantial degree Authority to commit employer in matters that have significant financial impact

Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance 

Must be more than just using skill in applying well-established techniques, procedures or specific standards described in manuals or other sources

Management or General Business Operations













Tax Finance Accounting Budgeting Auditing Insurance Quality Control Purchasing Procurement Advertising











Marketing Research Safety and Health Human Resources Employee Benefits Labor Relations Public and Government Relations Legal and Regulatory Compliance

8

Common Miscalculation Of Administrative Status



Failure to distinguish “discretion and independent judgment” from the use of skill (541.2) Discretion and Independent Judgment is NOT    

Merely applying knowledge in following set procedures Determining which procedures to follow Determining whether specific standards are met Determining whether object falls into one of a number of specific grades, classes, or other categories (with or without the use of measuring device)

Grandits v. U.S., 66 F.3d Ct. 519, 538 (2005)

Challenges To Administrative Status












Safety specialist (no discretion) Inside sales (sales, no discretion) Information technology support specialist (no highly-specialized knowledge) Payroll manager (issue of discretion) Field supervisor (no discretion or judgment) Dispatchers (manual type tasks) Purchasing agent (no authority on vendor or negotiating price) Bookkeeper (collect and present data, no discretion) Project supervisor (no management) Executive Assistant (if authority delegated regarding matters of significance) Human Resource Manager (formulates, interprets and implements policies)

Learned Profession Exemption








Work Requiring Advance Knowledge in a Field of Science of Learning Acquired by a Prolonged Course of Specialized Intellectual Instruction Traditional professions – Science, Law, Medicine, Theology, Accounting, Engineering, Architecture, Teaching, Pharmacology New professions – Athletic Trainers, Funeral Directors, Embalmers

29 CFR 541.301

9

Computer Employee Exemption




Weekly salary requirement or hourly minimum of $27.63/hour No requirement for exercise of discretion and judgment Must be employed as:  Computer Systems Analyst  Computer Programmer  Software Engineer  Similarly Skilled Worker Performing  Analyze System Techniques & Procedures  Consult with Users to Determine Hardware, Software, or System Functional Specifications

29 CFR 541.400

Computer Employee Exemption: Duties


Work on Computer System or Program     





Design Develop Creation Testing Modification

Based on and Related to User or System Design Specifications Any Combination of These Duties Requiring the Same Level of Skills

29 C.F.R. 541.400

Executive and Administrative Computer Employees Computer employees may be exempt as executive and/or administrative employees: 

Executive exemption 



Example: Senior or lead computer programmer, who manages the work of two or more programmers in a customarily recognized department, and whose recommendations regarding hiring, firing, advancement, promotion or other change of status of the other programmers are given particular weight

Administrative exemption 

Example: Systems analysts and computer programmers meet the administrative exemption, if primary duty includes planning, scheduling and coordinating activities required to solve complex business, scientific or engineering problems of the employer, or customers

29 C.F.R. 541.402

10

Outside Sales Exemption






Salary requirements do not apply Primary duty (50% of time) must be making sales, or obtaining orders or contracts for services; Must be customarily and regularly engaged away from the employer’s place or places of business; Sales must be made at customer’s home or place of business Selling a service includes employees who sell or take order for a service which may be performed for the customer by someone other than the person taking the order

29 C.F.R. 541.500; 29 C.F.R. 541.700

Permissible Inside Work For Outside Sales Duties


Exempt work includes:    





Writing sales reports Updating or revising employee’s sales or display catalogue Planning itineraries Attending sales conferences

Exempt work does not include sales made by mail, telephone, or the internet Mail, telephone or internet contact may be used only as an adjunct to meeting with customers

29 C.F.R. 541.500

Outside Sales: Drivers Who Sell






Drivers who sell – may qualify as exempt outside sales employees ONLY IF the employee’s primary duty is making sales Driver must be the only sales contact between employer and customer, and Driver must solicit or obtain orders, and Driver must have an established route.

11

Non-Sales Duties Drivers/Sales







Delivering products and stocking vending machines Delivering products for standing orders Delivering products, stocking shelves, price stamp commodities, arrange merchandise on shelves, clean and service display cases unless to further driver’s own sales efforts Collections

29 C.F.R. 541.504

Highly Compensated Employees






Perform office or non-manual work Total annual compensation of at least $100,000 and must include at least $455 per week paid on a salary or fee basis, AND Customarily and regularly perform any one of the duties of an exempt, executive, administrative or professional employee

29 C.F.R. 541.601

Fringe Benefit Costs Excluded From $100,000 Calculation


Compensation Does Not Include: Payments for Medical Insurance Payments for Life Insurance  Contributions to Retirement Plans  Cost of Other Fringe Benefits  

29 C.F.R. 541.601(b)

12

Retail or Service Employees’ Exemption From Overtime Must meet ALL of the following conditions
Employed by retail establishment
Regular rate of pay must exceed 1-1/2 times the minimum wage for every hour worked in a workweek, and
More than ½ the employee’s total earnings must consist of commissions on goods and services 29 C.F.R. 779.312

Additional Overtime Exemptions










Auto, truck, farm implement, boat or aircraft salespersons, parts clerks, and mechanics employed by non-OEMs primarily engaged in selling these items to ultimate purchasers Railroad and air carrier employees, seamen on American vessels Announcers, news editors, chief engineers of certain nonmetropolitan broadcasting stations Employees of motion picture theaters Farm workers Domestic service workers residing in employers’ residences Certain employees of motor carriers, taxi drivers

29 U.S.C. 213

Public Sector Exclusions And Exemptions








Elected Officials Personal Staff of Elected Officials Policy Making Appointees Legal Advisors Employees of State or Local Government Legislative Bodies Volunteers Small Police/Fire Agencies

13

Are You Concerned Yet?






What me worry? Not worried at all A little concerned Some what concerned Very concerned

Why FLSA Violations Matter







Ease of collective actions Two year limitations period (Three years if willful knowledge of violation or reckless) Double damages (double amount of back pay) Attorney fees General severance agreement waiver does not waive FLSA claim Corporate officers individually liable

14