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Rules For Managing Exempt Employees

By Don Phin

One of the most confusing areas of wage and hour law has to do with identifying and maintaining the exempt employee status. The rules and regulations in this area are governed by both federal and state regulations, agency guidelines and court decisions. The starting point is the Fair Labor Standards Act (FLSA), which identifies employees as being “exempt” from overtime payment obligations when they fit certain criteria. The most common exempt employee classifications for the white-collar workplace include executive, administrative and professional employees; outside salespersons; and highly skilled computer-related occupations. There are also exemptions set forth for seasonal type employees, agricultural employees, delivery workers, and many other specific classifications. Again, various states have their own classifications, sometimes more restrictive than the federal one.

It is important to remember that how you label an employee or what their job description says does not determine whether or not they are exempt. Only their actual duties will determine their classification. Again, the agencies will look at what a person does, what their responsibilities are and how they are paid in determining whether or not they are exempt. Under federal law, there’s a two-part test that focuses on an employee’s duties and salary. The executive exemption applies to anyone who supervises other employees. They must generally direct the work of two or more other employees. There’s an administrative exemption for employees who work as executive or administrative assistants and a professional exemption for people such as lawyers, doctors, dentists, pharmacists, engineers, teachers and accountants. In all cases, in order to be exempt these employees have to meet criterion that becomes more stringent where they are paid less than $250 per week.

Remember, state regulation can be even more restrictive. For example, in California, the employee must be engaged in work which is primarily intellectual, managerial or creative, and which requires the exercise of discretion and independent judgment, and for which the remuneration is not less than $1,150 per month. The word “primarily” is interpreted to mean that they have to spend at least half of their work time devoted to their exempt duties. Other factors considered include the importance of managerial duties, the frequency of exercising discretionary power, the relative freedom from supervision, and so on.

As you can tell, this is a rather complex set of regulations that requires input from either seasoned human resource professionals, attorneys, or the agencies themselves.

It is most important to understand that exempt employees are paid for results, not hours worked. Due to this fact, an employer may not dock an exempt employees pay for partial days missed. An employer can always give an exempt employee who fails to show up to work regularly a negative evaluation, a demotion, a reduction in their salary or other measure — but they may not dock their pay. According to the FLSA guidelines, exempt employees must receive their full salary for any week in which they perform any work, without regard to the number of days or hours worked. An employer may withhold salary for an employee who does not work any portion of a workweek. This means that deductions may not be made for jury duty, witness obligations, or other mandated appearances unless that absence is for an entire workweek.

When can an employer dock an employee’s salary? According to the FLSA, when an employee is absent for one or more full days for reasons other then their being sick or in an accident, or if they are in fact using up sick time for that absence. To be on the safe side, employers should not have exempt employees use partial sick days, jury leave days, etc.

Interestingly, the courts are unclear as to whether or not the voluntarily payment of overtime to an exempt employee will destroy their status as such. If you attempt to offer overtime compensation to salaried employees, you should first consult with legal counsel.

Additional guidelines can be found by going to the Federal Labor Standards Act web site. You can also go to the FLSA advisor. You can find an excellent online index of state wage and hour statutes and legislation on the internet at http://www.prairienet.org/~scruffy/f.htm and also at http://www.loc.gov/global/state/stategov.html. 

ABOUT THE AUTHOR

Don Phin is an attorney who for more than 16 years, has specialized in the litigation of employment and business cases. He has represented hundreds of employees, partners and companies in that time. Don has litigated wrongful termination, race and age discrimination, sexual harassment, whistle-blower, trade-secret theft, fraud, partnership dissolution and many other cases to a successful conclusion. In 1995, Don obtained the status of a Certified Professional Consultant to Management (CPCM). Since then, he spends a large part of his time consulting, writing, speaking and coaching.

Don’s seminars, workshops and reports have been delivered to such groups as the International Risk Management Institute, Insurance Marketing and Management Services, The Executive Committee, The CEO Club, The Society for Human Resource Management, Foundation of Enterprise Development, The National Human Resource Association and The National Association of Professional Consultants to Management.

Risk management is about possibilities and probabilities. It’s about assessing the 80/20 of exposure and then committing the strategies and tools needed to protect yourself. I hope these insights will help those of you battling on the front lines. If you have any questions regarding the trials and tribulations of managing in today’s high-risk environment, e-mail or give me a call at 800-234-3304.

riskVue | The webzine for risk management professionals
March 2001