Who Is Exempt From the Overtime Pay Rules?
Coincidentally, yesterday’s blog on overtime pay was posted the same day that the U.S. Labor Department released its latest jobs report. According to the report, the economy added 216,000 jobs in March, and the unemployment rate fell to 8.8%. Also, the workweek didn’t get any longer in March. Discussing the report this morning, David Leondardt of The New York Times noted that the workweek typically gets longer before a big boom in hiring. By creating a financial incentive for businesses to hire more workers instead of paying overtime, the overtime pay rules play the role intended for them when the Fair Labor Standards Act (“FLSA”) was enacted in 1938. (See yesterday’s blog.)
Business owners frequently ask for guidance on overtime pay. Employees must be paid for their overtime work unless they are exempt from the rules. Exempt employees are those who are “employed in a bona fide executive, administrative, or professional capacity or in the capacity of outside salesman” and who are paid a salary of at least $455/week instead of an hourly wage. The Labor Department regulations outline what these employment categories mean in detail.
A bona fide executive is one whose primary duty is management of the company or a recognized department or subdivision, who regularly directs the work of two or more employees, who has actual hiring and firing authority (or whose recommendations on hiring, firing, advancement, promotion, etc. are given particular weight) and who is paid the minimum salary. Manager-employees without hiring or firing authority and those who do not manage at least two others are not exempt. In other words, they must be paid overtime.
Bona fide administrative employees are those who perform “white collar” work related to the running or servicing of the business as opposed to “blue collar” work on a production line or selling a product. These include salaried employees in areas such as tax, finance, accounting, auditing, quality control, advertising, marketing, research, safety and health, human resources, labor relations and others.
The exemption does not extend to manual laborers or “blue collar” workers who “perform work involving repetitive operations with their hands, physical skill and energy,” including production-line employees and carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, engineers, longshoremen and construction workers and laborers. These employees are entitled to overtime pay no matter how highly skilled and paid they might be.
Bona fide professional employees are those on salary whose primary duty is the performance of work requiring knowledge of an advanced type in a field of science or learning that is “customarily acquired by a prolonged course of specialized intellectual instruction” or which requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. Professional employees are those whose jobs require an advanced or specialized degree, if they are on salary. Highly skilled employees paid by the hour and those such as firemen and other first responders are not exempt; in other words, they must be paid for their overtime work.
The business law attorneys at Underhill & Underhill, P.C. assist business owners in developing appropriate payroll policies and procedures for their employee manuals and handbooks and can provide further guidance in applying the overtime pay regulations to your business.
