July 27, 2018
I. Overview of The Fair Labor Standards Act and Georgia Law
One of the foremost concerns for any business is the potential for liability associated with employees. Employees are essential for the success of almost any business, and complying with employment laws is therefore an essential part of running a business. Wage and hour requirements are some of the most longstanding and fundamental parts of statutory employment law, but they often they are misunderstood or misapplied by employers. These materials will provide you with some basic information about the most important wage and hour law—the Federal Fair Labor Standards Act (“FLSA” or the “Act”). Although we hope that these materials will serve as a valuable resource, they are no substitute for legal advice. If you are faced with a wage and hour issue, please contact an attorney.
A. History and Background of the FLSA
The FLSA was adopted in 1938 as a means of economic recovery from the Great Depression. One of its principal aims was the establishment of a minimum wage to curb deflation while increasing the purchasing power of average wage earners. Another was the establishment of mandatory overtime compensation in order to encourage greater employment by making it more expensive for the employer to hire a few employees working longer hours rather than hiring more employees to work shorter hours.
To accomplish these goals, the FLSA has two major wage components. First, employees must be paid a regular hourly rate that is at least equal to the applicable minimum hourly wage (currently $7.25 per hour). Second, if a non-exempt employee works more than 40 hours in a workweek, that employee must be paid a rate that is one and one-half times the employee’s regular hourly rate for all time worked in excess of 40 hours.
B. Scope of the Act
1. Who is Covered?
Most employees are covered by the Act. Section 203 of the FLSA contains the provisions that control “employee” status. Section 3(d) defines “employer” as “includ[ing] any person acting directly or indirectly in the interest of an employer in relationship to an employee.” Section 203(e)(1) defines an “employee” as “any individual employed by an employer.” Section 3(g) defines employ as “to suffer or permit to work.” The term employer is interpreted broadly. Unlike many statutes, there is no minimum number of employees an employer must have to be covered by the Act.
Under the “enterprise coverage” rule, all employees of an business are covered by the FLSA if the business (or “enterprise”) is engaged in interstate commerce, engaged in the production of goods for interstate commerce, or working on goods or materials that have been moved in or produced for interstate commerce, and the enterprise has an annual business volume of at least $500,000. At least two employees must be engaged in interstate commerce. The fact that not all employees are involved in the interstate activity does not prevent coverage of the entire enterprise.
Even if an employer does not meet the enterprise coverage test, some or all of its workers may be covered under the “individual employee coverage” test. Under this test, individual workers are covered if they are:
• engaged directly in interstate commerce;
• engaged in the production of goods for interstate commerce; or
• employed in any closely-related process or occupation that is directly essential to the production of goods for interstate commerce.
Workers are covered by the individual employee test even if only a small percentage of their work duties or hours are devoted to interstate commerce. As long as they perform interstate activities on a regular and recurrent basis, employees are subject to the FLSA’s minimum wage and overtime compensation requirements.
2. Individual Liability for Some Managers
Under the FLSA, an “employer” can be not only a business entity or sole proprietorship, but also any person acting “directly or indirectly in the interest of an employer.” This means that some managers and agents of employers can be deemed employers and found individually liable for violations of the FLSA. Factors that can indicate employer status include authority to hire and fire, direct supervision and control over the work conditions, and active involvement in the direction of work, setting of schedules, and assignment of duties. Individual and personal liability under the FLSA extends to managers who are involved in the day-to-day operation of the business or who have some direct responsibility for the supervision of the employee. This is so regardless of whether the employee’s paycheck is issued by a corporation.
Recent judicial decisions have confirmed that individual officers and managers may be held liable for FLSA violations. In Lamonica v. Safe Hurricane Shutters, Inc., the U.S. Court of Appeals for the Eleventh Circuit held that two shareholders of a small shutter installation business were individually and personally liable for FLSA violations, even though they were not every day supervisors, because they were directly involved in the running of the business, distributed work orders to installers, and discussed wages with some of the company’s employees. The holding is not necessarily limited to corporate shareholders; the decision relied more heavily on the fact that they had “substantial supervisory powers” and directly interacted with the employees.
3. Employee or Independent Contractor?
Whether a worker is an employee or an independent contractor is a question of law applied to the facts, and is not a matter of choice or agreement on the part of the employer— or even the employee. A worker may be deemed an employee as a matter of law, even if the worker signed an agreement stating that he or she is engaged as an independent contractor or otherwise purportedly waives rights under the FLSA. (Rights under the FLSA cannot be waived by agreement; attempts to do so generally are null and void.)
If an individual is truly an independent contractor based on all the facts and circumstances, then he or she is not covered by the FLSA. A worker’s status as either an employee or an independent contractor under the FLSA generally is determined on the basis of an “economic realities” test, which consists of several factors, including: (i) whether the principal (the person or entity engaging the worker) exercises significant control over the worker, especially with regard to the means and manner of the work performed; (ii) whether the worker has an opportunity for profit or loss based on an investment of resources in a business (as opposed to merely devoting time for compensation); (iii) whether and to what extent the services in question are an integral part of the principal’s business; (iv) whether the worker’s relationship with the principal is exclusive or relatively permanent; and (v) whether the worker’s success depends on independent initiative, judgment, and foresight in open market competition with others.
Whether a worker is an employee or an independent contractor is often a hotly contested question. This issue is often explored not only by the U.S. Department of Labor, but also by the IRS and various state agencies (including the Georgia Department of Labor). These agencies do not use the same tests to determine employee status, and sometimes their decisions conflict with those of the DOL or other agencies. The issue can be very fact intensive and liability can depend on minute details and the overall weight of all the evidence.
4. Volunteers, Students, Trainees, and Others
Not all individuals who are “suffered or permitted” to work are employees. If a person engages in services or activities on the premises of an employer, but such services or activities are solely for their own personal purpose or pleasure with no expectation of payment, the individual might not necessarily be considered an employee. However, in most situations, private enterprises, particularly those that operate for profit, must proceed with extreme caution any time they engage individuals for performance of services if they hope to show that they are not employees. Persons who voluntarily donate services to charitable organizations generally are not employees within the meaning of the FLSA. To be considered a volunteer, the work must be truly voluntary, the services must be for a charitable or humanitarian purpose, and there must be no expectation of remuneration or exchange. Many non-profit and charitable organizations have employees, however. In these instances, employees who perform work outside their normal working hours performing the same or similar tasks as those for which they are employed likely will be deemed employees for all the work performed. Services provided for the charitable organization that are not normally provided by an employee might qualify as “volunteer” services even if the person performing such services is an employee who normally performs other types of work. However, the services would need to meet all requirements for such services as discussed above, particularly a clear understanding that there is no expectation of pay.
Persons who perform services for their own benefit, such as to obtain training or experience for the future, might be deemed non-employees under the FLSA, provided that certain criteria are established. These criteria include:
• Training is for the primary benefit of the student or trainee and the employer receives no immediate benefit for the services;
• Training obtained is similar to that provided by vocational programs;
• Trainees do not displace regular employees; and
• There is a clear understanding that no pay will be provided and no job is promised at the conclusion of training.
In some occupations, students and learners may be employed at less than minimum wage rates if they are part of a bona fide vocational training program (authorized and approved by a state board of vocational education or similar government agency) if the employment is on a part-time basis and the student also receives instruction in an accredited school, college, or university and works as part of an organized plan of instruction designed to teach technical knowledge.
5. Undocumented Aliens
Courts have rejected arguments that workers who were not actually authorized to work in the United States should not be entitled to minimum wage or overtime, even if they allegedly lied about their status to obtain the job. In Lamonica v. Safe Hurricane Shutters, Inc. the U.S. Court of Appeals for the Eleventh Circuit held that undocumented aliens were not precluded from recovering minimum wage and overtime under the FLSA, even though the employer argued it would never have hired them had it known they were ineligible for employment. The Court reasoned that, because the employer received the benefit of the services, it could not deny pay to the employees for work already performed. The Court distinguished an earlier decision by the U.S. Supreme Court holding that undocumented aliens could not recover back pay after termination under the National Labor Relations Act because, in that case, the workers had not already performed the services for which they were seeking compensation.
6. Joint Employer Situations and Temporary Employees
To assure protection for workers, the FLSA allows for a worker to be considered economically dependent on, and thus jointly employed by, more than one entity at the same time. Whether the employers will be considered joint employers depends on the particular facts. If all the relevant facts indicate the employers are acting entirely independently of each other and are completely disassociated with respect to the employment of a particular employee (who has performed work for both employers during the same workweek), the employers may disregard the work performed by the employee for the other employer. If the facts indicate that the employers are engaged in joint economic activities, or if the employee is jointly employed by two or more employers, however meaning that the employers do not act independently of each other and/or are not disassociated, then all of the employee’s work performed in a workweek will be considered for purposes of the Act. There are several tests that are used to determine whether a joint employer relationship exists. Common factors that are considered are:
• the nature and degree of control the employers have over the workers;
• the degree of supervision, direct or indirect, the employers exercise over the
• the right, directly or indirectly, to hire, fire, or modify the workers’ conditions of
• the employers’ power to determine the workers’ rates or methods of payment;
• the employers’ preparation of payroll and payment;
• the employers’ ownership of the facilities where the work occurred;
• whether the workers’ performance is integral to the employers’ businesses; and
• the employers’ respective investment in the equipment and facilities used by the
7. What is Not Covered by the FLSA?
There are a number of employment practices which the FLSA does not regulate. For example, the FLSA does not require:
• vacation, holiday, severance, or sick pay;
• meal or rest periods, holidays off, or vacations;
• premium pay for weekend or holiday work;
• pay raises or fringe benefits;
• a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees; and
• pay stubs or W-2’s.
Also, the FLSA does not provide wage payment or collection procedures for an employee’s usual or promised wages or commissions in excess of those required by the FLSA. The FLSA also does not limit the number of hours in a day or days in a week an employee may be required or scheduled to work, including overtime hours, if the employee is at least 16 years old.
C. Operation with Other Laws
The FLSA provides minimum standards that may be exceeded, but cannot be waived or reduced. Employers must comply, for example, with any Federal, State or municipal laws, regulations or ordinances establishing a higher minimum wage or lower maximum workweek than those established under the Act. Similarly, employers, on their own initiative or under a collective bargaining agreement with a labor union, are not precluded by the Act from providing a wage higher than the statutory minimum, a shorter workweek than the statutory maximum, or a higher overtime premium (double time, for example) than provided by the Act. While collective bargaining agreements cannot waive or reduce the Act's protections, nothing in the Act or the regulations in this part relieves employers from their contractual obligations under collective bargaining agreements.
D. Georgia Wage and Hour Laws
Georgia has a statute requiring minimum wage but not overtime. The minimum wage statute (O.C.G.A. § 34-4-3) applies only to employers who are not covered by the FLSA. There is an exemption for employers (i) with annual sales of $40,000 or less, (ii) who employ five or fewer employees or only domestic employees, or (iii) are farm owners, sharecroppers, or land renters. The minimum wage under Georgia law (if not covered by the FLSA or if not exempt) is $5.15 per hour. If the employer is covered by the FLSA and no exemption applies, the FLSA requirements will apply.
II. The “White Collar” Exemptions
Under the FLSA, employees are classified into two basic groups: non-exempt and exempt. Non-exempt employees are those who are required to be paid at least the minimum hourly wage for all hours worked and are entitled to receive overtime for any hours worked over 40 in a given workweek. Under the FLSA, a workweek is seven consecutive calendar days comprising a total of 168 hours. An employer is allowed to choose the day of the week and the hour of the day to start and end a workweek. Exempt employees are those for whom the FLSA provides an exemption from its minimum wage and/or overtime pay requirements.
There are nearly 70 exemptions defined by the Act. Many are narrow exemptions allowed for employees in certain industries, such as railroad employees, agricultural workers, motor carriers, and seasonal workers. The most common overtime exemptions are the so-called “white collar” exemptions and the outside sales employee exemption. These exemptions cover employees employed in a bona fide executive, administrative, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of an outside sales employee. The Act also provides an exemption from the minimum wage and overtime requirements for computer systems analysts, computer programmers, software engineers, and other similarly skilled computer employees. An overview of these regulations, as well as those that pertain to the outside sales employee and computer professional exemptions, is provided below.
A. The Salary Basis Test.
To qualify as an exempt executive, administrative, or professional employee under the FLSA, an employee must be compensated on a salary basis at a rate of not less than $455 per week (or $380 per week if employed in American Samoa by employers other than the Federal Government), exclusive of board, lodging or other facilities. Administrative and professional employees may also be paid on a fee basis.
The $455 a week may be translated into equivalent amounts for periods longer than one week. The requirement will be met if the employee is compensated biweekly on a salary basis of $910, semimonthly on a salary basis of $985.83, or monthly on a salary basis of $1,971.66. The shortest period of payment that will meet this compensation requirement is one week.
In the case of professional employees, the compensation requirements do not apply to: employees engaged as teachers; employees who hold a valid license or certificate permitting the practice of law or medicine or any of their branches and are actually engaged in the practice thereof; or to employees who hold the requisite academic degree for the general practice of medicine and are engaged in an internship or resident program pursuant to the practice of the profession. In the case of medical occupations, the exception from the salary or fee requirement does not apply to pharmacists, nurses, therapists, technologists, sanitarians, dietitians, social workers, psychologists, psychometrists, or other professions which service the medical profession. In other words, there are very few exceptions to the salary or fee requirement, and these types of medical-related professions must meet the requirement for the exemption to apply.
1. Highly Compensated Employees
An employee with total annual compensation of at least $100,000 is deemed exempt if the employee customarily and regularly1 performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee. “Total annual compensation” must include at least $455 per week paid on a salary or fee basis. Total annual compensation may also include commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period. Total annual compensation does not include payments for medical insurance, payments for life insurance, contributions to retirement plans and the cost of other fringe benefits.
If an employee’s total annual compensation does not total at least $100,000 by the last pay period of the 52-week period, the employer may, during the last pay period or within one month after the end of the 52-week period, make one final payment sufficient to achieve the required level. For example, an employee may earn $80,000 in base salary, and the employer may anticipate based upon past sales that the employee also will earn $20,000 in commissions. Due to poor sales in the final quarter of the year, however, the employee actually only earns $10,000 in commissions. In this situation, the employer may within one month after the end of the year make a payment of at least $10,000 to the employee. Any such final payment made after the end of the 52-week period may count only toward the prior year’s total annual compensation and not toward the total annual compensation in the year it was paid. If the employer fails to make such a payment, the employee does not qualify as a highly compensated employee, but may still qualify as exempt.
An employee who does not work a full year for the employer, either because the employee is newly hired after the beginning of the year or ends the employment before the end of the year, may qualify for exemption under this section if the employee receives a pro rata portion of the minimum amount established above, based upon the number of weeks that the employee will be or has been employed. An employer may make one final payment as described above within one month after the end of employment.
A high level of compensation is a strong indicator of an employee’s exempt status, thus eliminating the need for a detailed analysis of the employee’s job duties. Thus, a highly compensated employee will qualify for exemption if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee identified below.
2. Payment on a Salary Basis
An employee will be considered to be paid on a “salary basis” if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. Subject to the exceptions provided below, an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. Exempt employees need not be paid for any workweek in which they perform no work. An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business and the employee is otherwise ready, willing and able to work.
The prohibition against deductions from pay in the salary basis requirement is subject to the following exceptions:
(1) Deductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons, other than sickness or disability. Thus, if an employee is absent for two full days to handle personal affairs, the employee’s salaried status will not be affected if deductions are made from the salary for two full-day absences. However, if an exempt employee is absent for one and a half days for personal reasons, the employer can deduct only for the one full-day absence.
(2) Deductions from pay may be made for absences of one or more full days occasioned by sickness or disability (including work-related accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary occasioned by such sickness or disability. The employer is not required to pay any portion of the employee’s salary for full-day absences for which the employee receives compensation under the plan, policy or practice. Deductions for such full-day absences also may be made before the employee has qualified under the plan, policy or practice, and after the employee has exhausted the leave allowance thereunder. Thus, for example, if an employer maintains a short-term disability insurance plan providing salary replacement for 12 weeks starting on the fourth day of absence, the employer may make deductions from pay for the three days of absence before the employee qualifies for benefits under the plan; for the twelve weeks in which the employee receives salary replacement benefits under the plan; and for absences after the employee has exhausted the 12 weeks of salary replacement benefits. Similarly, an employer may make deductions from pay for absences of one or more full days if salary replacement benefits are provided under a State disability insurance law or under a State workers’ compensation law.
(3) While an employer cannot make deductions from pay for absences of an exempt employee occasioned by jury duty, attendance as a witness or temporary military leave, the employer can offset any amounts received by an employee as jury fees, witness fees or military pay for a particular week against the salary due for that particular week without loss of the exemption.
(4) Deductions from pay of exempt employees may be made for penalties imposed in good faith for infractions of safety rules of major significance. Safety rules of major significance include those relating to the prevention of serious danger in the workplace or to other employees, such as rules prohibiting smoking in explosive plants, oil refineries and coal mines.
(5) Deductions from pay of exempt employees may be made for unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules. Such suspensions must be imposed pursuant to a written policy applicable to all employees. Thus, for example, an employer may suspend an exempt employee without pay for three days for violating a generally applicable written policy prohibiting sexual harassment. Similarly, an employer may suspend an exempt employee without pay for twelve days for violating a generally applicable written policy prohibiting workplace violence.
(6) An employer is not required to pay the full salary in the initial or terminal week of employment. Rather, an employer may pay a proportionate part of an employee’s full salary for the time actually worked in the first and last week of employment. In such weeks, the payment of an hourly or daily equivalent of the employee’s full salary for the time actually worked will meet the requirement. However, employees are not paid on a salary basis within the meaning of these regulations if they are employed occasionally for a few days, and the employer pays them a proportionate part of the weekly salary when so employed.
(7) An employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act. Rather, when an exempt employee takes unpaid leave under the Family and Medical Leave Act, an employer may pay a proportionate part of the full salary for time actually worked. For example, if an employee who normally works 40 hours per week uses four hours of unpaid leave under the Family and Medical Leave Act, the employer could deduct 10 percent of the employee’s normal salary that week.
(8) When calculating the amount of an allowable deduction from pay, the employer may use the daily equivalent of the employee’s full weekly salary proportional to the time actually missed by the employee.
3. Effect of Improper Deductions
An employer who makes improper deductions from salary may lose the exemption if the facts demonstrate that the employer did not intend to pay employees on a salary basis. An actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis. The factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to: (1) the number of improper deductions, particularly as compared to the number of employee infractions warranting discipline; (2) the time period during which the employer made improper deductions; (3) the number and geographic location of employees whose salary was improperly reduced; (4) the number and geographic location of managers responsible for taking the improper deductions; and (5) whether the employer has a clearlycommunicated policy permitting or prohibiting improper deductions.
If the facts demonstrate that the employer has an actual practice of making improper deductions, the exemption is lost during the time period in which the improper deductions were made for all employees in the same job classification working for the same managers responsible for the actual improper deductions. Employees in different job classifications or who work for different managers do not lose their status as exempt employees. Thus, for example, if a manager at a company facility routinely docks the pay of engineers at that facility for partial-day personal absences, then all engineers at that facility whose pay could have been improperly docked by the manager would lose the exemption; engineers at other facilities or working for other managers, however, would remain exempt.
Improper deductions that are either isolated or inadvertent will not result in loss of the exemption for any employees subject to such improper deductions, if the employer reimburses the employees for such improper deductions.
4. Safe Harbor
If an employer has a clearly-communicated policy that prohibits the improper pay deductions and includes a complaint mechanism, reimburses employees for any improper deductions and makes a good faith commitment to comply in the future, such employer will not lose the exemption for any employees unless the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints. If an employer fails to reimburse employees for any improper deductions or continues to make improper deductions after receiving employee complaints, the exemption is lost during the time period in which the improper deductions were made for employees in the same job classification working for the same managers responsible for the actual improper deductions.
The best evidence of a clearly-communicated policy is a written policy that was distributed to employees prior to the improper pay deductions by, for example, providing a copy of the policy to employees at the time of hire, publishing the policy in an employee handbook or publishing the policy on the employer’s Intranet.
B. The Executive Exemption.
An “employee employed in a bona fide executive capacity” is exempt from the minimum wage and overtime requirements of the Act. The term includes any employee: (1) Who is compensated on a salary basis at a rate of not less than $455 per week (or $380 per week if employed in American Samoa by employers other than the Federal Government), exclusive of board, lodging or other facilities;
(2) Whose primary duty2 is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
(3) Who customarily and regularly directs the work of two or more other employees; and
(4) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.
The term “employee employed in a bona fide executive capacity” also includes any employee who owns at least a bona fide 20-percent equity interest in the enterprise in which the employee is employed, regardless of whether the business is a corporate or other type of organization, and who is actively engaged in its management. The salary requirements do not apply to the business owners described in this section.
Generally, “management” includes, but is not limited to, activities such as:
• interviewing, selecting, and training of employees;
• setting and adjusting their rates of pay and hours of work;
• directing the work of employees;
• maintaining production or sales records for use in supervision or control;
• appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status;
• handling employee complaints and grievances;
• disciplining employees;
• planning the work;
• determining the techniques to be used;
• apportioning work among employees;
• determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold;
• controlling the flow and distribution of materials or merchandise and supplies;
• providing for the safety and security of the employees or the property;
• planning and controlling the budget; and
• monitoring or implementing legal compliance measures.
2. Customarily Recognized Department or Subdivision
The phrase “a customarily recognized department or subdivision” is intended to distinguish between a mere collection of employees assigned from time to time to a specific job or series of jobs and a unit with permanent status and function. A customarily recognized department or subdivision must have a permanent status and a continuing function. For example, a large employer’s human resources department might have subdivisions for labor relations, pensions and other benefits, equal employment opportunity, and personnel management, each of which has a permanent status and function.
When an enterprise has more than one establishment, the employee in charge of each establishment may be considered in charge of a recognized subdivision of the enterprise. A recognized department or subdivision need not be physically within the employer’s establishment and may move from place to place. The mere fact that the employee works in more than one location does not invalidate the exemption if other factors show that the employee is actually in charge of a recognized unit with a continuing function in the organization.
Continuity of the same subordinate personnel is not essential to the existence of a recognized unit with a continuing function. An otherwise exempt employee will not lose the exemption merely because the employee draws and supervises workers from a pool or supervises a team of workers drawn from other recognized units, if other factors are present that indicate that the employee is in charge of a recognized unit with a continuing function.
3. Customarily and Regularly Directing the Work of Two or More Other Employees.
To qualify as an exempt executive, the employee must customarily and regularly direct the work of two or more other employees. The phrase “two or more other employees” means two full-time employees or their equivalent. One full-time and two half-time employees, for example, are equivalent to two full-time employees. Four half-time employees are also equivalent.
The supervision can be distributed among two, three, or more employees, but each such employee must customarily and regularly direct the work of two or more other full-time employees or the equivalent. Thus, for example, a department with five full-time nonexempt workers may have up to two exempt supervisors if each such supervisor customarily and regularly directs the work of two of those workers.
An employee who merely assists the manager of a particular department and supervises two or more employees only in the actual manager’s absence does not meet this requirement.
Hours worked by an employee cannot be credited more than once for different executives. Thus, a shared responsibility for the supervision of the same two employees in the same department does not satisfy this requirement. However, a full-time employee who works four hours for one supervisor and four hours for a different supervisor, for example, can be credited as a half-time employee for both supervisors.
4. Particular Weight
To determine whether an employee’s suggestions and recommendations are given “particular weight,” factors to be considered include, but are not limited to, whether it is 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, and the frequency with which the employee’s suggestions and recommendations are relied upon. Generally, an executive’s suggestions and recommendations must pertain to employees whom the executive customarily and regularly directs. It does not include an occasional suggestion with regard to the change in status of a co-worker. An employee’s suggestions and recommendations may still be deemed to have “particular weight” even if a higher level manager’s recommendation has more importance and even if the employee does not have authority to make the ultimate decision as to the employee’s change in status.
C. The Administrative Exemption.
An “employee employed in a bona fide administrative capacity” is exempt from the minimum wage and overtime requirements of the Act. The term includes any employee:
(1) Who is compensated on a salary or fee basis at a rate of not less than $455 per week (or $380 per week if employed in American Samoa by employers other than the Federal Government), exclusive of board, lodging or other facilities;
(2) Whose primary duty is the performance of office or non-manual work directly related3 to the management policies or general business operations of the employer or the employer’s customers; and
(3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
1. “Directly Related to Management Policies or General Business Operations.”
To qualify for the administrative exemption, an employee’s primary duty must be the performance of work directly related to the management or general business operations of the employer or the employer’s customers. The phrase “directly related to management policiesor general business operations” refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment. Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as tax, finance, accounting, budgeting, auditing, insurance, quality control, purchasing, procurement, advertising, marketing, research, safety and health, personnel management, human resources, employee benefits, labor relations, public relations, government relations, computer network, internet and database administration, legal and regulatory compliance, and similar activities. Some of these activities may be performed by employees who also would qualify for another exemption.
An employee may qualify for the administrative exemption if the employee’s primary duty is the performance of work directly related to the management policies or general business operations of the employer’s customers. Thus, for example, employees acting as advisers or consultants to their employer’s clients or customers (as tax experts or financial consultants, for example) may be exempt.
2. Discretion and Independent Judgment with Respect to Matters of Significance.
To qualify for the administrative exemption, an employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. The term “matters of significance” refers to the level of importance or consequence of the work performed. The phrase “discretion and independent judgment” must be applied in the light of all the facts involved in the particular employment situation in which the question arises. Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to:
(1) whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; (2) whether the employee carries out major assignments in conducting the operations of the business; (3) whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; (4) whether the employee has authority to commit the employer in matters that have significant financial impact; (5) whether the employee has authority to waive or deviate from established policies and procedures without prior approval; (6) whether the employee has authority to negotiate and bind the company on significant matters; (7) whether the employee provides consultation or expert advice to management; (8) whether the employee is involved in planning long- or short-term business objectives; (9) whether the employee investigates and resolves matters of significance on behalf of management; and (10) whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances. The exercise of discretion and independent judgment implies that the employee has authority to make an independent choice, free from immediate direction or supervision. Employees, however, can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level. Thus, the term “discretion and independent judgment” does not require that the decisions made by an employee have a finality that goes with unlimited authority and a complete absence of review. The decisions made as a result of the exercise of discretion and independent judgment may consist of recommendations for action rather than the actual taking of action. The fact that an employee’s decision may be subject to review and that upon occasion the decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment. For example, the policies formulated by the credit manager of a large corporation may be subject to review by higher company officials who may approve or disapprove these policies. The management consultant who has made a study of the operations of a business and who has drawn a proposed change in organization may have the plan reviewed or revised by superiors before it is submitted to the client.
D. The Professional Exemption.
An “employee employed in a bona fide professional capacity” is exempt from the minimum wage and overtime requirements of the Act. The term includes any employee: (1) Who is compensated on a salary or fee basis at a rate of not less than $455 per week (or $380 per week if employed in American Samoa by employers other than the Federal Government), exclusive of board, lodging, or other facilities; and
(2) Whose primary duty is the performance of work:
(i) Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or
(ii) Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
1. The Learned Professional
To qualify for the learned professional exemption, an employee’s primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. The phrase “work requiring advanced knowledge” means work which is predominantly intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical or physical work. An employee who performs work requiring advanced knowledge generally uses the advanced knowledge to analyze, interpret or make deductions from varying facts or circumstances. Advanced knowledge cannot be attained at the high school level.
The phrase “customarily acquired by a prolonged course of specialized intellectual instruction” restricts the exemption to professions where specialized academic training is a standard prerequisite for entrance into the profession. The best evidence that an employee meets this requirement is possession of the appropriate academic degree. The exemption, however, is also available to employees in such professions who have substantially the same knowledge level and perform substantially the same work as the degreed employees, but who attained the advanced knowledge through a combination of work experience and intellectual instruction.
2. The Creative Professional
To qualify for the creative professional exemption, an employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor, as opposed to routine mental, manual, mechanical or physical work. The exemption does not apply to work which can be produced by a person with general manual or intellectual ability and training.
To qualify for exemption as a creative professional, the work performed must be “in a recognized field of artistic or creative endeavor.” This includes such fields as music, writing, acting and the graphic arts. The requirement of “invention, imagination, originality or talent” distinguishes the creative professions from work that primarily depends on intelligence, diligence and accuracy. The duties of employees vary widely, and exemption as a creative professional depends on the extent of the invention, imagination, originality or talent exercised by the employee. Determination of exempt creative professional status, therefore, must be made on a case-by-case basis.
3. Teachers and Educators
The term “employee employed in a bona fide professional capacity” also means any employee with a primary duty of teaching, tutoring, instructing or lecturing in the activity of imparting knowledge and who is employed and engaged in this activity as a teacher in an educational establishment by which the employee is employed.
The possession of an elementary or secondary teacher’s certificate provides a clear means of identifying the individuals contemplated as being within the scope of the exemption for teaching professionals. Teachers who possess a teaching certificate qualify for the exemption regardless of the terminology (e.g., permanent, conditional, standard, provisional, temporary, emergency, or unlimited) used by the State to refer to different kinds of certificates. However, private schools and public schools are not uniform in requiring a certificate for employment as an elementary or secondary school teacher, and a teacher’s certificate is not generally necessary for employment in institutions of higher education or other educational establishments. Therefore, a teacher who is not certified may be considered for exemption, provided that such individual is employed as a teacher by the employing school or school system.
Salary requirements of this part do not apply to the teaching professionals described in this section.
4. Doctors and Lawyers
The term “employee employed in a bona fide professional capacity” also shall mean:
(1) Any employee who is the holder of a valid license or certificate permitting the practice of law or medicine or any of their branches and is actually engaged in the practice thereof; and
(2) Any employee who is the holder of the requisite academic degree for the general practice of medicine and is engaged in an internship or resident program pursuant to the practice of the profession.
In the case of medicine, the exemption applies to physicians and other practitioners licensed and practicing in the field of medical science and healing or any of the medical specialties practiced by physicians or practitioners. The term “physicians” includes medical doctors including general practitioners and specialists, osteopathic physicians (doctors of osteopathy), podiatrists, dentists (doctors of dental medicine), and optometrists (doctors of optometry or bachelors of science in optometry).
Employees engaged in internship or resident programs, whether or not licensed to practice prior to commencement of the program, qualify as exempt professionals if they enter such internship or resident programs after the earning of the appropriate degree required for the general practice of their profession.
The salary requirements of this part do not apply to the employees described in this section.
E. The Computer Professional Exemption.
Computer systems analysts, computer programmers, software engineers or other similarly skilled workers in the computer field are eligible for exemption as professionals. Because job titles vary widely and change quickly in the computer industry, job titles are not determinative of the applicability of this exemption.
The exemption applies to any computer employee compensated on a salary or fee basis at a rate of not less than $455 per week (or $380 per week, if employed in American Samoa by employers other than the Federal Government), exclusive of board, lodging or other facilities, or to any computer employee compensated on an hourly basis at a rate not less than $27.63 an hour. In addition, the exemption applies only to computer employees whose primary duty consists of:
(1) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
(2) The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
(3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
(4) A combination of the aforementioned duties, the performance of which requires the same level of skills.
The exemption for employees in computer occupations does not include employees engaged in the manufacture or repair of computer hardware and related equipment. Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified above, are also not exempt computer professionals.
Computer employees within the scope of this exemption, as well as those employees not within its scope, may also have executive and administrative duties which qualify the employees for the executive exemption or the administrative exemption. For example, systems analysts and computer programmers generally meet the duties requirements for the administrative exemption if their primary duty includes work such as planning, scheduling, and coordinating activities required to develop systems to solve complex business, scientific or engineering problems of the employer or the employer’s customers. Similarly, a senior or lead computer programmer who manages the work of two or more other programmers in a customarily recognized department or subdivision of the employer, and whose recommendations as to the hiring, firing, advancement, promotion or other change of status of the other programmers are given particular weight, generally meets the duties requirements for the executive exemption.
F. The Outside Sales Exemption.
The FLSA also provides an exemption for individuals who perform sales outside the employer’s place of business. The term “employee employed in the capacity of outside salesman” means any employee:
(1) Whose primary duty is:
(i) making sales, or
(ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
(2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.
In determining the primary duty of an outside sales employee, work performed incidental to and in conjunction with the employee’s own outside sales or solicitations, including incidental deliveries and collections, shall be regarded as exempt outside sales work. Other work that furthers the employee’s sales efforts also shall be regarded as exempt work including, for example, writing sales reports, updating or revising the employee’s sales or display catalogue, planning itineraries and attending sales conferences.
The salary requirements of this part do not apply to the outside sales employees described in this section.
The U.S. Supreme Court recently decided a case regarding the “outside sales” exemption. In Christopher v. Smithkline Beecham Corporation, the Court held that pharmaceutical sales representatives were exempt from minimum wage and overtime, even though they did not actually make any sales or obtain any orders but instead they attempted to obtain non-binding commitments by physicians to prescribe their employer’s products. A number of lower courts had reached conflicting conclusions regarding these types of employees. The Supreme Court resolved the issue in a very controversial, 5-4 decision, by reasoning that a “sale” does not necessarily require a transfer of title, but instead allowed for “other dispositions” that included non-binding commitments to prescribe. Essentially, the Court held that the representatives fell within the exemption because their activities resembled sales activities more closely than they did “promotion” activities.
G. Other Exemptions.
Another exemption applies to employees of any “seasonal amusement or recreational establishment, organized camp, or religious or non-profit educational conference center.” An establishment is “seasonal” if (a) it does not operate for more than seven months in any calendar year or (b) its average receipts for any six months during the preceding calendar year were not more than one-third of its average receipts for the other six months of such year. To be exempt, an establishment must be: (1) a special type of operation such as a summer camp, swimming pool, race track, or other recreational facility; (2) a seasonal operation satisfying either the “seven month operation” test or the “six month receipts” test; and (3) separate from other operations that are not the right special type or that are not seasonal. Importantly, this exemption applies to all employees of the establishment (if it is the right special type), regardless of the employees’ duties or functions. An “establishment” is a single place of business that is physically separated from other parts of an business organization; the term is distinct from “enterprise”. There can be many establishments within an enterprise or business unit that is under common control. This exemption applies only to employees within the special type of establishment, even though other establishments in the same enterprise might not be seasonal or recreational.
Certain employees of automotive, farm implement, and aircraft dealers also are exempt from the overtime pay provisions of the FLSA, but not the minimum wage provisions. This exemption applies to sales persons, parts persons, and mechanics primarily engaged in selling or servicing automobiles, trucks, or farm vehicles for a non-manufacturing establishment that is primarily engaged in the business of selling vehicles to ultimate purchasers. Also exempt are sales persons engaged in the sale of trailers, boats, and aircraft for non-manufacturing establishments. These exemptions cover a number of types of employees of dealerships.
Employees of movie theaters also are exempt from overtime requirements but not minimum wage requirements under the FLSA.
Agricultural workers are exempt from overtime requirements and some (but not all) also are exempt from minimum wage requirements under the FLSA, depending on the circumstances. For purposes of the FLSA, “agriculture” is defined to include farming, cultivation, and tillage of the soil, dairy farming, production and harvesting of horticultural commodities, raising livestock or poultry, and various practices such as forestry and lumbering that are performed by farmers or on farms as an incident to or in conjunction with farming operations. However, employees of plants for the processing of beef, pork, and poultry (among other items) generally are not exempt.
Motor carrier workers may be exempt from overtime requirements under the FLSA, but not minimum wage requirements, if they are directly involved in interstate transportation and devote a substantial part of their time to activities that directly affect the safety of operation of motor vehicles used on public roads. This includes drivers, drivers’ helpers, loaders, and mechanics. This exemption would not apply to local drivers or other workers who do not perform activities related to interstate transportation.
Home health care workers have long been exempt from overtime requirements under the FLSA. However, in 2013 the Department of Labor issued a rule extending overtime and minimum wage protections to direct care workers in home health and domestic services. The new rule takes effect January 1, 2015. Companionship workers employed by families and individuals (but not those employed by an agency or enterprise) continue to be exempt, but only if they do not provide care or domestic services during more than 20% of their total work week, or if they provide services such as nursing care that require special medical training.
1 Throughout the regulations, the phrase “customarily and regularly” means a frequency that is greater than occasional but which is less than constant. Tasks or work performed “customarily and regularly” includes work normally and recurrently performed every workweek; it does not include isolated or one-time tasks.
2 Throughout the regulations, the term “primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole. Factors to consider when determining the primary duty of an employee include, but are not limited to, the relative importance of the exempt duties as compared with other types of duties; the amount of time spent performing exempt work; the employee’s relative freedom from direct supervision; and the relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.
The amount of time spent performing exempt work can be a useful guide in determining whether exempt work is the primary duty of an employee. Thus, employees who spend more than 50 percent of their time performing exempt work will generally satisfy the primary duty requirement. Time alone, however, is not the sole test, and nothing in this section requires that exempt employees spend more than 50 percent of their time performing exempt work. Employees who do not spend more than 50 percent of their time performing exempt duties may nonetheless meet the primary duty requirement if the other factors support such a conclusion.
3 Throughout the regulations, the phrase “directly and closely related” means tasks that are related to exempt duties and that contribute to or facilitate performance of exempt work. Thus, “directly and closely related” work may include physical tasks and menial tasks that arise out of exempt duties, and the routine work without which the exempt employee’s exempt work cannot be performed properly. Work “directly and closely related” to the performance of exempt duties may also include recordkeeping; monitoring and adjusting machinery; taking notes; using the computer to create documents or presentations; opening the mail for the purpose of reading it and making decisions; and using a photocopier or fax machine. Work is not “directly and closely related” if the work is remotely related or completely unrelated to exempt duties.