Is that manager really exempt? Much depends on how she spends most days
One of the trickiest problems in HR management is determining which employees are exempt from the Fair Labor Standards Act’s (FLSA) overtime provisions. Classifying an hourly employee as exempt when she’s not can be costly.
The wrong classification may mean you owe the employee (and all similarly situated employees) overtime for every hour over 40 per week she worked, plus a penalty equal to the unpaid overtime.
It’s no wonder HR professionals lose sleep over classification.
The best approach is to regularly review exactly what employees actually do, day in and day out. Then measure that by what the FLSA regulations say indicates exempt status.
Doing so will catch any obvious misclassifications before it’s too late and give you documentation you can present later to explain your reasoning.
Recent case: Luana worked as a manager of a Family Dollar store and was paid a salary of $733 per week, plus several thousand dollars in bonuses each year. She managed more than two employees and worked an average of 56 hours per week.
Family Dollar classified her as an exempt executive employee and didn’t pay her overtime for the hours beyond 40 per week that she worked.
Luana sued, alleging she should have been classified as an hourly worker, making her eligible for overtime pay.
She claimed she spent most of her time doing menial tasks like stocking, working the cash register, cleaning and otherwise making sure the store looked organized and inviting.
Company representatives testified that Luana was by far the highest-paid employee at her store. During her tenure, most employees earned just $8 per hour.
Plus, Luana was responsible for scheduling, balancing the books, disciplining employees and screening job applicants for interviews.
Her direct supervisor visited the store only once a month and was responsible for many additional stores within several hundred miles.
The court tossed out Luana’s claim. It reasoned that Family Dollar had proven that Luana’s primary function was managing the store with little supervision and plenty of discretion in how to do her job. She was therefore exempt under the executive category, even if she spent a great deal of time doing the same work as the subordinates she supervised at the same time. (In Re Family Dollar FLSA Litigation, Scott v. Family Dollar, No. 3:08-CV-110, WD NC, 2013)
Requirements to meet FLSA’s executive exemption
Here are factors courts consider when determining whether an employee should be classified as an exempt executive employee—which is how many employers commonly (and correctly) treat retail store and restaurant managers.
- Amount of time spent on managerial duties
- Relative importance of those duties compared with other duties
- Relative freedom from supervision
- Relative wages for the exempt employee and his or her subordinates
- How often the exempt employee exercises discretion
- Whether the exempt employee has great influence or actual decision-making power to hire, fire, promote or demote subordinates.
In addition, the employee must be paid on a salary basis at least $455 per week and supervise the work of two or more employees.