Many employers mistakenly believe that by paying an employee an annual salary as opposed to an hourly rate that the employee is automatically exempt from overtime. Mistakenly classifying an employee as exempt can result in the payment of tens of thousands to even millions of dollars in fines, penalties and back wages. Therefore it is important to understand who is eligible to be exempt from overtime under federal law.
Under the Fair Labor Standards Act ("FLSA"), the general requirement is that all employees are entitled to be paid at least minimum wage for all hours worked and one and one-half times their "regular rate" of pay for all hours worked over forty (40) in a work week. There are, however, several exemptions to this general rule. For example, most salespeople, parts-counter personnel and technicians are exempt from the overtime requirements but not the minimum wage requirements; however, most technicians will receive overtime pay as a result of labor negotiations. Salespeople and parts-counter personnel remain exempt provided that more than fifty percent (50%) of their wages come from commissions.
For all other personnel (managers, office staff, etc.) you must analyze the job responsibilities for each employee in order to determine their eligibility for exemptions under the FLSA. The following is a summary of the exemptions and their requirements.
The FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive and administrative employees. To qualify for the exemption in New York, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $675 per week. Job titles do not determine exempt status. In order for an exemption to apply, an employee's specific job duties and salary must meet all the requirements of the Department of Labor's regulations.
Generally, in order to be considered a salaried employee, the individual's pay should not increase with the quality or quantity of work performed. If an otherwise executive or administrative employee is paid by the hour, then he or she is not exempt, nor is anyone else in the same classification. Deductions from pay are allowed:
- When an employee is absent from work for one or more full days for personal reasons other than sickness or disability;
- For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
- To offset amounts employees receive as jury or witness fees, or for temporary military duty pay;
- For penalties imposed in good faith for infractions of safety rules of major significance;
- For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions;
- In the employee's initial or terminal week of employment if the employee does not work the full week, or
- For unpaid leave taken by the employee under the Federal Family and Medical Leave Act.
In addition, if an otherwise salaried employee is "docked" for absences from work for partial days, then he or she is not salaried and is not exempt, nor is anyone else in the same classification.
Executive Exemption
To qualify for the executive employee exemption, all of the following tests must be met:
- The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $675 per week;
- The employee's primary duty must be managing the dealership, or managing a customarily recognized department or subdivision of the enterprise;
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
- The employee must have the authority to hire or fire other employees, or the employee's suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
Administrative Exemptions
To qualify for the administrative employee exemption, all of the following tests must be met:
- The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $675 per week;
- The employee's primary duty must be 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
- The employee's primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Highly Compensated Employees
Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $675 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive or administrative employee identified in the standard tests for exemption. An employee may qualify as an exempt highly compensated executive if the employee customarily and regularly directs the work of two or more other employees but does not meet all the other requirements in the standard test for exemption as an executive.
For more information or if you have any questions on wage and hour matters please contact Stevan LaBonte at 516-280-8580.
