Donald F. Fontaine : Attorney at Law
Phone

97 India Street 
Portland, ME 04101 
dff@fontainelaw.com 


White Collar Exemptions

Salary Requirement

An employee must be compensated “on a salary basis” to be considered an exempt employee.  The salary must be at lease $455.00 per week.

The Department of Labor has adopted a technical view of what constitutes compensation on a “salary” basis.  Therefore, one must determine if an employer’s pay policies really provide “salaries” as the Department of Labor uses the term.  This requirement applies to all of the so-called “white-collar” exemptions in this chapter:  academic administrative, administrative, executive, and professional, except teachers, doctors, and lawyers.

Deductions

Many employers dock the pay of an employee for misconduct, or absences due to jury duty, attendance as a witness, or temporary military leave. Salary may not be reduced when an employee misses work if he is ready, willing and able to work. When an employee is absent for less than one day, either for personal or illness reasons, the employer may not dock her pay. There are, however, some deductions that employers may make from the salary of employees without destroying the salary status.  Deductions may be made for absences for personal reasons of more than one day. §541.603(b)(2).

However, a different rule exists for public employees.  They may have their pay deducted even for absences (personal or sick) of less than a day, unlike those in the private sector, if a government policy or practice based upon “principles of public accountability” (to taxpayers) requires pay to be reduced for hours not worked.  §541.710. Public employees are treated differently from employees in the private sector when their salary is reduced because of their absence from work due to the employer’s decision to temporarily close the place of employment.  Deductions made by public employers due to a budget-required furlough does not destroy the employees’ salary status.

Primary Duty

To be exempt, the major part of an employee’s time should be spent in “exempt functions.”  A good rule of thumb is 50% of the time.  For example, an employee who spends over 50% of the time in administrative duties related to academic matters would likely have academic administration as the “primary duty.”  But this is only a “rule of thumb.”

Work Directly and Closely Related

To apply the 50 percent rule there is frequently disagreement as to what work falls into the “exempt” category and what work falls into the “non-exempt” category.  For example, work that initially appears to be routine production work sometimes falls into the “exempt management” category because it is said to be “directly and closely related” to the management work.  29 C.F.R. §541.703.  The new F.L.S.A. Regulation (August, 2004) gives ten (10) examples of how this principle applies.  See two examples below.

  • A business consultant who usually does exempt administrative work, may take extensive notes recording the flow of work and materials through the office or plant of the client; after returning to the office of the employer, the consultant may personally use the computer to type a report and create a proposed table of organization.

While note-taking and typing is usually non-exempt work performed by nonexempt employees, and in fact it is frequently the practice to do so, delegating such routine tasks in not required as a condition of exemption.

  • A teacher performs work directly and closely related to exempt duties when, while taking students on a field trip, the teacher drives a school van or monitors the students’ behavior in a restaurant.

Executive Exemption

In order for an employer to claim an executive exemption for a particular employee, and so escape the payment of overtime, the employee must be salaried and employer must establish three things.

  1. The primary duty of the employee is the management of the enterprise in which he is employed, or the management of a customarily recognized department or subdivision of the enterprise;
  2. The employee customarily and regularly directs the work of two or more employees; and
  3. The employee has the authority to hire or fire employees or whose suggestions and recommendations as to hiring, firing, advancement, promotion or any change of status of other employees is given particular weight.  29 C.F.R. 541.100.

Management

To be exempt an employee’s primary job must be “management.” The same principles for determining whether management is or is not the “primary” duty apply to all four exemptions here explained.  “Management” will be considered the employee’s primary job if the employee is performing executive-type, supervisory duties such as the following ones:  interviewing, selecting and training of employees; setting and adjusting the pay rate and hours of workers; controlling the work of employees and appraising productivity; handling complaints and grievances; determining the types of materials, supplies and machinery or tools to be used or merchandise to be bought; providing for the safety of the employees at work, and other similar activities spelled out in the regulations. 29 C.F.R. §541.102

Two or More Employees

An employee will qualify as an executive only if he or she customarily and regularly supervises at least two full-time employees or the equivalent.  For example, if the “executive” supervises one full-time and two part-time employees of whom one works morning and one, afternoons; or four part-time employees, two of whom work mornings and two afternoons, this requirement would be met.  29 C.F.R. §541.104.

Administrative Employees

To gain the “administrative exemption” of an employee under F.L.S.A. an employer must pay an employee a salary of at least $455.00 per week, and –

(1) The employee’s primary duty must be the performance of office or non-manual work, directly related to the management or general business operations of the employer or its customers .

(2) The primary duty must include work requiring the exercise of discretion and independent judgment with respect to maters of consequence.  29 C.F.R. §541.200 – 202.

Production v. Administration

Work is exempt if it is office or non-manual work “related to the management or general business operations.”  Thus, an administrator is one who runs the overall business of the enterprise, making it possible for the production workers to do their work.

Lower Level Administrators

Other work, which is non-production work, is often not considered important enough to be “related to the management or general business operations.”  Examples of this type of work follow:

  • One who writes standardized promotional  literature for a university may be extremely important to the university, but it would not be considered exempt work.
  • A tax consultant is ordinarily doing work of substantial importance to the management or operation of a business.  Exempt
  • A messenger who is entrusted with carrying large sums of money or securities cannot be said to be doing work of importance to the business even though serious consequences may flow from a messenger’s neglect.  Non-exempt
  • Clerks in a personnel office who merely provide application forms or record information are not exempt, but a personnel director who determines personnel policies that affect all employees is.
  • Some establishments employ persons whom they describe as “statisticians.”  If all such a person does is to tabulate data, this is not exempt work.  However if a “statistician” makes analyses of data and draws conclusions which are important to financial or merchandising decision or to policy of the company, that person is doing work directly related to the management or general business operations.  This is exempt work.

Discretion and Independent Judgment

An administrator must exercise “discretion and independent judgment” in carrying out her primary duties.  This means comparing and evaluating different courses of action and making a decision after the various possibilities have been considered.  The employee must be relatively free from supervision and be able to make decisions in regard to matters of significance.  This requirement is often misapplied in two situations:

  • Confusion between the exercise of discretion and independent judgment, and the use of skill in applying techniques, procedures or specific standards; and
  • Misapplication of the term to employees making decisions relating to matters of little consequence.

Decisions in Significant Matters

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:

  • Whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices;
  • Whether the employee carries out major assignments in conducting the operations of the business;
  • Whether the employee has authority to waive or deviate from established policies and procedures without prior approval;
  • Whether the employee has authority to negotiate and bind the company on significant matters;
  • Whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.  29 C.F.R. §541.202 (b).

Professional Employees

To be exempt from overtime wages, a professional employee must be “salaried” as described above in number 1, except for teachers, doctors, and lawyers, who need not be on salary, and:

  1. Have duties that primarily consist of performing work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study (as opposed to general academic education)
  2. Such work must require the consistent exercise of discretion and judgment and involve work requiring intervention, imagination, or talent in a recognized field of artistic endeavor; 29 C.F.R. §541.301

The Computer Occupational Professional

This professional must be highly skilled in computer systems analysis, programming and related software functions.  The exemption applies only to persons “who have achieved a high level of proficiency in the theoretical and practical application of a body of highly-specialized knowledge.”  §541.400.  The primary duties must be one or more of the following:

  • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
  • The design, development, documentation, analysis, creation, testing, or modifications of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  • The design, documentation, testing creation or modification of computer programs related to machine operating systems.

Administrative Academic Personnel

Administrative employees of schools are exempt if they do work that is “directly related to academic administration or general academic operations of the school” in whose general operations they are employed. 29C.F.R.  §541.204#.  “Academic” administration means work that relates specifically to academic matters as opposed to a school’s general business operations.  In order to be exempt under this section, employees must perform services directly in the field of education.  The following jobs are examples of jobs that would not be exempt under this exemption:

  • building management
  • health and social workers
  • food services
  • payroll

 



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