Managers may be entitled to minimum wage and overtime pay unless they meet the specific exemption requirements of the Fair Labor Standards Act (“FLSA”). As a general rule, all employees are entitled to be paid minimum wages and overtime pay when they work more than 40 hours in a week. However, the FLSA has several exemptions that allow employers to avoid paying minimum wages and overtime to certain types of employees. For example, someone in a bona fide executive position is not entitled to minimum wages and overtime, but the executive’s primary job duties must meet very specific requirements.
According to federal regulations, an employee is employed in a bona fide executive capacity if the following requirements are fully met:
- The manager must be paid a salary of at least $455 per week;
- The manager’s primary duty must be to manage the business or a recognized department or division of the business;
- The manager must customarily and regularly direct the work or two or more full time employees; and
- The manager must have the authority to hire/fire employees or make suggestions that are given weight by the employer regarding the hiring, firing, promotion or other change of employee status. See 29 C.F.R. 541.100.
Unless each of those requirements are met, the manager will be entitled to overtime unless they satisfy some other FLSA exemption. In the paragraphs that follow, we will provide you with an overview of the analysis that must go into determining whether these requirements are met. One key point to remember while reading is that it is the employer’s burden to prove that its employee is exempt from the minimum wage and overtime pay provisions of the Act.
First, the employer must show that their manager receives a true salary. This may seem like a simple concept, but there are many pitfalls to a salary that can severely hamper an employer’s ability to argue that you are exempt. Deductions from a salaried worker’s pay may cause your status as a “salaried” worker to be lost and cause you to be entitled to overtime. If you have had deductions to your pay, you should contact an experienced wage and hour law attorney to make sure that such deductions do not make you eligible for minimum wages and overtime pay. For more information about whether you are being properly paid on a salary, please review this article on the characteristics of a salary.
Second, the employer must prove that your primary duty is to manage the business or a recognized department or division of the business. An employee’s “primary duty” is defined as a “principal, main, major or most important duty that the employee performs.” 29 C.F.R. 541.700. Determination of an employee’s primary duty must be made upon analysis of all the particular facts of the worker’s employment. In the current state of the US economy, the primary duty of managers is shifting and more and more “managers” are entitled to overtime. For example, salaried managers are a fixed cost to employers, while hourly employees are can cause significant fluctuation in a company’s monthly overhead. For this reason, many employers are getting rid of many hourly workers and having their salaried managers fill the void. While during boom times, a manager may have rarely stocked shelves and worked the register, many managers are finding that the amount of time they are expected to perform job duties previously done by hourly employees is increasing. As a result, the primary duty of many managers and assistant managers may be shifting into non-management areas and they are now entitled to both minimum wages and overtime pay.
Third, managers must “customarily and regularly direct the work of two or more full time employees.” 29 C.F.R. 541.100. The regulations permit employees to be aggregated, such that four part-time employees or one full-time and two half-time employees would be the equivalent of two full-time employees. On the same token, however, supervision may be distributed among several managers, but each supervisor must still have supervision over two or more full-time employees or their equivalent. This means that in department with five full-time employees, there could only be two exempt managers.
Finally, a manager must be able to hire, fire or at least make recommendations that are given weight regarding hiring, firing, promotion or other employee status changes. 29 C.F.R. 541.100. Many salaried “managers” handily meet all of the exemption requirements except the hire/fire prong simply because of a controlling owner or CEO. Often, newer managers who have not yet earned the respect of their supervisors are told that they may not hire or fire and their opinion regarding an employee’s status is not given weight. Under this particular example, the new manager would not be an exempt executive and would be entitled to minimum wage or overtime pay unless some other exemption applies.
As you can see, determining whether or not an employee is an exempt executive is not as easy as it may appear. If you are a manager or otherwise classified as an exempt employee and have questions about how you are being compensated, contact an experienced wage and hour employment lawyer today.