Overtime Exemptions Remain Widely Misunderstood
Original Post from SHRM.org
By: Allen Smith
Even if workers’ pay is higher than the newly raised exempt salary threshold, they still might not be exempt. That’s because the new overtime rule didn’t add any requirements to the duties tests but left the existing duties tests in place. And the tests are widely misunderstood, particularly those for the administrative exemption, according to Robert Boonin, an attorney with Dykema in Detroit and a speaker at the Society for Human Resource Management 2016 Annual Conference & Exposition.
“I’m afraid you may be OD’d on overtime,” Boonin said at his presentation’s outset. But he reminded attendees that the salary level for the white-collar exemption—$455 a week, or $23,660 per year, under the 2004 overtime rule—will be raised to $913 a week, or $47,476 per year, effective Dec. 1 and walked them through potential traps in classifying workers as exempt.
Who’s In, Who’s Out
Paralegals are almost never exempt under the administrative exemption, Boonin remarked, and the same is true for help desk employees and administrative assistants. Other positions that probably don’t fit within the exemption include mortgage loan originators, customer service representatives and insurance adjustors.
To fall under the administrative exemption, an employee must have the primary duty of performing office or nonmanual work related to the employer’s management or general business operations.
He noted that areas likely to be related to management and general operations include:
- Accounting.
- Advertising.
- Auditing.
- Employee benefits.
- Finance.
- Government relations.
- Human resource management.
- Insurance.
- Labor relations.
- Marketing.
- Procurement.
- Public relations.
- Purchasing.
- Quality control.
- Research.
- Safety and health.
- Tax.
- Training and development.
That’s a wide swath of operations.
But, most important, the employee must exercise “independent judgment and discretion” on “matters of significance” to fit within this exemption, he emphasized.
An employee who falls under the exemption should not merely follow marching orders. So, while an HR coordinator who processes applications wouldn’t fit within the exemption, an HR director who oversees an HR department probably would.
‘Independent Judgment and Discretion’
When determining whether someone has discretion and independent judgment, Boonin said, HR should consider whether the employee:
- Has the authority to formulate, affect, interpret, or implement management policies or operating practices.
- Carries out major assignments in conducting the operations of the enterprise.
- Performs work that affects business operations to a substantial degree, even if assignments are related to operation of a particular segment of the business.
- Has authority to commit the employer in matters that have significant financial impact.
- Has authority to waive or deviate from established policies and procedures without prior approval.
- Has authority to negotiate and bind the institution on significant matters.
- Provides consultation or expert advice to management.
- Plans long- or short-term business objectives.
- Investigates and resolves matters of significance on behalf of management.
- Represents the institution in handling complaints, arbitrating disputes or resolving grievances.
Professional Exemption
The professional employee exemption is more straightforward. The primary duties must be in an area requiring specialized higher education and the consistent exercise of discretion and judgment, he said. These areas include:
- Engineering.
- Law.
- Medicine.
- Psychology.
- Science.
- Social work.
- Teaching.
Positions that may not fit within this exemption include accountants, stockbrokers and entry-level engineers.
While the salary threshold in general must be satisfied for white-collar employees to be exempt, the threshold does not apply to:
- Doctors.
- Lawyers.
- Teachers.
*Employees in highly skilled computer-related occupations, such as programmers and network designers who earn at least $27.63 per hour.
Other Exemptions
In addition to the administrative and professional exemptions, the executive exemption is available to employees who supervise at least two full-time workers and have the authority to hire and fire, in addition to primarily managing the enterprise, a department or subdivision.
Boonin noted that the outside sales exemption is for those whose primary duty is to sell services to customers at their place of business. There are no salary or fee requirements for exempt outside sales employees.
Special rules apply to highly compensated employees, who don’t fit within the white-collar exemptions. They perform a combination of nonexempt work (what the Department of Labor now refers to as “overtime-eligible” work) and exempt work, plus are high earners.
Take a sales director. She might not fit within the administrative exemption if the vice president of sales calls all the shots. She also wouldn’t fall under the professional exemption. Nor would she fit within the executive exemption if she supervised two full-time employees but didn’t have the authority to hire or fire them; again, the vice president might reserve that function for herself.
The sales director still would be exempt if her salary is—as of Dec. 1—at least $134,004 because she performs at least one of the duties in the executive, administrative or professional employee exemptions: supervising two full-time employees.
