Exempt from Overtime? Think Twice.

July 21st, 2011

Salaried employees don’t get paid overtime, right? Not necessarily. Paying employees on a salary basis is not sufficient to provide a legal exemption from having to pay overtime. This Short Report provides a general overview of the main categories of overtime exemptions under state and federal law and an explanation of the consequences of misclassifying employees as exempt.

The law presumes that an employee is eligible for overtime pay. An employee is exempt from overtime pay only if the employer can show that the employee falls into one of several carefully defined exemptions under both state and federal law. If the employee is exempt under federal law, but not under state law, the employer will still have to pay overtime according to the state law rules, and vice versa.

The most common exemptions include:

  • Executive Exemption (for example, a manager who supervises at least two employees of the business or a department, spends the vast majority of his/her time on management duties, has the power to hire, fire and promote or has a say in such decisions, regularly exercises discretionary powers and is paid a salary of at least $455 per week might be exempt).
  • Administrative Exemption (for example, accountants or HR personnel who exercise discretion and independent judgment with respect to matters of significance, spend the vast majority of their time performing office or non-manual work directly related to the employer’s management policies or general business operations, meet other specific tests, and are paid on a fee or salary basis at least $455 per week might be exempt).
  • Professional Exemption (for example, doctors or lawyers who meet specific tests and are paid on a fee or salary basis of at least $455 per week might be exempt).

These are merely examples of the general types of jobs that might fall into the exempt categories. However, actual job duties, not job titles, dictate whether a position is exempt. For example, an employer may give an employee the title of “manager,” but if the employee only supervises one person or has minimal managerial duties, the employee may not be exempt. The duties of each job must be compared to the criteria of the state and federal exemption(s) that the employer believes may be applicable. Click on the links to review the criteria of the executive, administrative and professional federal exemptions, as well as the criteria for all of the state exemptions.

In addition to the three main exemptions, other exemptions may apply, such as the computer-related and outside sales exemptions, each of which has its own test.

Figuring out how to comply with exemption tests can be difficult. Failure to do so properly can be expensive.  If, for example, an employee successfully proves under federal law that an employer improperly classified the employee as exempt from overtime, the employer could be liable to the employee for twice the amount of the unpaid overtime and for the employee’s attorneys’ fees. The employer would also have to pay its own attorneys’ fees. In short, the consequences of misclassification can be significant.

If you would like assistance in determining whether your employees are properly classified, or if you have any other employment law-related questions, please contact Meg Vergeront at 608.259.2663 or mvergeront@staffordlaw.com.

Filed Under: Business Law

Note: The SR Short Report is published by Stafford Rosenbaum. The SR Short Report is provided for informational purpose only and should not be construed as legal advice or an opinion on specific situations. The legal issues raised by a particular situation may differ from those addressed in the publication. We encourage you to contact one of the Stafford Rosenbaum attorneys before making a legal decision.