There are now six general, exempt classifications ...



DETERMINING EXEMPT STATUS

PURSUANT TO DEPARTMENT OF LABOR REGULATIONS

There are now six general, exempt classifications: executive, administrative, professional, highly compensated employee, computer professional, and outside salesperson. These are commonly referred to as “white collar exemptions”. This memo will address the first four exemptions. It is important to remember that all employees are presumed to be entitled to overtime and that it is the employer’s burden to prove that an employee is exempt from overtime. It is also important to remember that it is not the title of the job which renders an individual exempt or non-exempt, it is the job content.[1]

1. Executive Employees

The basic requirements to be an overtime-exempt executive are not much different than existed in the past, but the emphasis is different. An overtime-exempt executive employee must:

• Have as his or her primary duty management of the enterprise or of a customarily recognized department or subdivision of that enterprise, even if they perform both exempt and non-exempt work.

• Customarily and regularly supervise two full time employees or their equivalent.

• Have the ability to hire or fire employees or be able to make recommendations which are given particular weight regarding hiring or firing or material changes in employees’ status, and

• Be paid a salary of at least $455 per week.

EXAMPLE

Marvin Jones works for LBS, Inc., a PR firm as a Vice President. He earns a salary of $1550 per week. His responsibilities include developing and maintaining strong relationships with senior clients, addressing issues, troubleshooting, providing strategic counsel, developing and delivering client presentations, developing new business, supervising all writing and editing, supervising two account teams, structuring and staffing new account teams and managing account budgets. He has a bachelor’s degree and ten years of experience. Marvin has the authority to hire or fire certain employees. Marvin spends approximately 50% of his time on managerial tasks, the remainder on such tasks as developing and maintaining client relationships.

Marvin is an exempt employee. He meets all four criteria. If, however, Marvin did not supervise at least two employees, he would not be an exempt employee, even though he would meet three of the four criteria.

In that case, Marvin would still be exempt, but as an administrative employee (see below).

2. Administrative Employees

The new regulations do not make much change in this exemption and the difficulties in applying this exemption remain. To be an exempt administrative employee, the employee must:

• Have a primary duty 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.

• Exercise independent judgment and discretion with respect to matters of significance,

- The authority to formulate, affect, interpret, or implement management policies or operating practices,

- Carrying out major assignments in conducting operations,

- The authority to commit the employer in matters that have significant financial impact,

- The ability to waive or deviate from established policies and procedures without prior approval,

- The provision of expert advice,

- The investigation and resolution of matters of significance,

- And similar tasks; and

• Be paid a salary or on a fee basis at a rate of $455 per week or more.

The regulations list the following as exempt administrative positions: insurance claim adjusters, financial services employees, human resources professionals, employees performing work in tax, auditing, marketing, quality control, and other specialty areas, and individuals who lead teams to complete major projects for the employer.

EXAMPLE 1

Abby Adams is an account supervisor for Meryl Bruce Public Relations and is paid a salary of over $455 per week. Abby has the following main responsibilities: developing long term plans and program recommendations for clients, providing client counsel, developing proposals, releases and other press materials, training and development and conducting performance reviews of staff and growing new business.

The client services and development of clients and business carried out by Abby is clearly exempt work because it is directly related to the company’s general business operations and includes the exercise of discretion and independent judgment. The only question is whether she exercises independent judgment and discretion with respect to matters of significance. It appears that she does given that she carries out major assignments in conducting operations, she provides expert advice to the client and has the authority to resolve matters of significance.

It is likely, therefore, that Abby would be considered an exempt employee.

EXAMPLE 2

Joe Josephs is a Senior Account Executive at Adam Scott Public Relations. He is the primary contact for his clients and provides support to several account teams. He has a thorough understanding of his clients and their industries and understands how to translate that knowledge into solid public relations counsel to clients. He helps to develop and implement strategic plans for clients. He drafts media relations materials and generates ideas for media outreach. He also manages external vendors.

Joe also writes proposals, press releases and other press materials and instructs staff in writing and editing. He reviews resumes and interviews candidates but does not have final hiring authority or influence.

Joe meets the first criterion of this exemption by having as a primary duty 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. There is some question as to whether he meets the second criterion. The issue will be whether Joe has authority to exercise independent judgment and discretion with respect to matters of significance. Arguably he does if he carries out major assignments, provides expert advice and has the authority to commit the employer in matters that have significant financial impact.

Joe is most likely an exempt employee, but may be an exempt professional as opposed to an exempt administrative employee. (See Example 1 set forth for professional employees).

3. Professional Employees

There are two types of professionals: “learned” and “artistic”. The exemption for learned professional employees is much the same as provided in the previous regulations. The exemption for artistic professional had been expanded somewhat. To be an exempt professional, an employee must:

• Have a primary duty which is the performance of work that requires knowledge of an advanced type in a field of science or learning customarily acquired through a prolonged course of intellectual instruction and study (e.g., accounting, law, medicine, engineering), or

• Requires invention, imagination, originality or talent in a recognized filed of artistic or creative endeavor, and

• Be paid a salary of at least $455 per week.

The new regulations seem to require that an employee have a minimum of a four year degree to be eligible for this exemption. The new regulations provide that certified physician assistants, chefs, funeral directors, registered nurses and certified athletic trainers who have obtained four-year degrees will be exempt if the other requirements are met. Paralegals are generally considered to be non-exempt.

Exempt professionals are generally given no more than the general subject matter of their undertaking and must use their creative ability to produce the final result. The determination of whether an individual exercises sufficient invention, imagination, originality or talent must be made on a case-by-case basis. For example, journalists who merely record community events will be non-exempt; journalists who analyze public events or who provide editorial comment may be exempt.

EXAMPLE 1

Randy Rogers has a bachelor’s degree in music but has worked as an Account Executive for Sara Lynn Public Relations for three years. She serves as the primary client contact within the agency and provides support to multiple account teams. She handles media outreach and develops press materials. In that role she generates story ideas and topic angles. She also provides basic client counsel although most counsel is provided by those senior to her in the agency. She delegates work to Account Coordinators and Assistant Account Executives as needed.

Randy has a four year degree, thus meeting the first criteria. The question is whether her job requires sufficient invention, imagination, originality or talent in a recognized filed of artistic or creative endeavor. Arguably she does much as a newspaper reporter will be exempt if they analyze events instead of just reporting them. It is likely, therefore, that Randy is an exempt professional employee.

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EXAMPLE 2

Betty Bonds is an Assistant Account Executive at Stanley Bernard Public

Relations. She joined the firm after receiving a bachelor’s degree in English. Betty’s primary responsibilities include participating in client meetings and preparing client-meeting reports, drafting client relations materials, monitoring media for coverage of client news and drafting letters and press kit materials Betty also oversees interns and account coordinators.

Betty’s position is really focused on helping her to develop the necessary skill set to become a successful PR practitioner.

Betty has a four year degree, thus meeting the first criteria. The question is whether her job requires sufficient invention, imagination, originality or talent in a recognized filed of artistic or creative endeavor. It probably does not. This position is really one of a trainee – someone who is learning to be a public relations professional. Thus, Betty is likely to be a nonexempt employee.

EXAMPLE 3

Sam Smith is an Account Coordinator at Stanley Bernard. He, like Betty, joined the firm after graduating with a four year degree. He is responsible for scheduling and coordinating client meetings, interacting with the client as instructed by the team leader, developing and maintaining media contact lists, drafting basic press releases, pitch letters and briefing documents. He also manages the monthly billing process, arranges travel and coordinates mass mailings.

Thus, his primary responsibilities are to provide administrative support to others in the organization.

Sam is clearly a nonexempt employee. His function does not meet the criteria for exemption.

4. Highly Compensated Employees

This is a new classification that exempts white-collar employees earning $100,000 or more in total compensation if they:

• Are paid on a salaried basis an amount of $455 per week or more,

• Are paid at least $100,000 per year in total compensation, excluding benefits,

• Perform office or non-manual work, and

• Customarily and regularly perform one or more of the duties required of an exempt employee.

EXAMPLE

Adam Scott is a senior financial advisor. His primary duty is the sale of financial products to customers, but he also supervises the work of two junior employees and has substantial input into whether employees should be retained after their probationary periods. He does not qualify as an exempt executive because his primary responsibility is not management. He is paid a base salary of $60,000 and for the last two years has earned over $40,000 each year in commissions. In 2004, however, Adam only earned $36,000 in commissions. The company gave him an additional $4,000 in order to bring his salary up to $100,000.

Adam is a highly compensated exempt employee.

DOL INVESTIGATIONS

The Department of Labor’s Wage and Hour Division is responsible for administering and enforcing the FLSA. Generally an investigation of an employer is instigated by an employee complaint. If the complaint involves minor violations involving only one or a few employees, the Division may choose to pursue a conciliation rather than conduct a full investigation.

If the Division believes that violations are more severe, or that the facts of the case are unclear, or that the employer is engaged in a willful violation, a full investigation is more likely. In that instance the compliance officer will interview employees and subpoena the company’s records regarding wages, hours, and other employment conditions or practices. It is imperative, therefore, that companies maintain in an organized fashion all documents and files relating to employees. In addition, if the compliance officer wishes to speak to employees during the investigation, the employees must be made available. Under no circumstances should the employer intimidate employees who may be interviewed by the DOL.

Employers should fully comply with any and all requests made by the compliance officer.

RECOMMENDATIONS TO EMPLOYERS

To prevent FLSA violations, employers should do the following:

• Make sure nonexempt employees are paid earned overtime.

• For salaried employees, do not deduct wages for partial absences, such as late arrivals or disciplinary suspensions.

• Make sure that appropriate information is posted.

• Make a good faith effort to comply with the FLSA. If an employer is able to show that it acted in good faith, penalties may be reduced.

• Listen to employees when they complain. As silly as many of these complaints may sound, they may actually alert an employer to possible violations. In no event should an employer retaliate against a complaining employee.

Shelley M. Greenwald, Esq.

This memo does not attempt to offer solutions to individual problems or to provide legal advice, but rather to provide information about current developments in the FLSA. Questions about individual problems should be addressed to the employment attorney of your choice.

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[1] An Account Coordinator cannot be made an exempt employee by calling him a Vice President of Coordination. The Department of Labor looks at the job that is being performed.

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