The Fair Labor Standards Act (FLSA) states that executive employees are exempt from overtime pay. This exemption applies to managerial or supervisory workers, but not everyone with the word “manager” in his job title is actually exempt. This post explains the three criteria that must be met for an employee to qualify for the executive exemption. (Remember that the salary basis test also applies).
The key question is whether the employee’s primary duty is actually managerial on a day-to-day basis. Merely giving someone an impressive job title or listing managerial duties in the job description is not enough. Many courts have ordered backpay awards to supposedly executive employees whose actual job duties involved mostly manual work. An executive employee must perform each of the three following duties in order to be overtime-exempt:
The employee’s primary duty is managing the enterprise, or a customarily recognized department or subdivision of the enterprise;
The employee customarily and regularly directs the work of at least two or more other full-time employees or their equivalent; and
The employee has the authority to hire, fire, promote, or demote other employees, or the employee’s suggestions and recommendations must be given particular weight.
Managing the Enterprise, or a Customarily Recognized Department or Subdivision
The first requirement is that the employee actually manages the business, or a “customarily recognized department or subdivision.” This means that most assistant managers are not exempt, and should be paid overtime if they work over forty hours. (Some assistant managers perform enough managerial tasks to qualify for this exemption, but they are the exception rather than the rule).
Determining whether a certain group of employees makes up a “customarily recognized” department or subdivision is a fact-specific question, but generally means a group or unit with a permanent status and function rather than a collection of employees who is occasionally called together to perform a job.
The key phrase here is “primary duty” – is the employee primarily engaged in managerial or supervisory tasks? The regulations provide a lengthy list of exempt tasks, including: reviewing job applications, interviewing applicants, setting and adjusting rates of pay and hours of work, handling employee complaints, disciplining employees, ordering materials and tools, and ensuring safety or regulatory compliance. (The full list may be found here). There is no requirement that an employee spend all of his time on management duties, or even a majority of his time on management duties – the primary duty is the most important duty, not necessarily the duty that takes up the most time. Still, an employee who mostly performs manual work and only occasionally helps with supervision probably does not meet the primary duty test.
Customarily and Regularly Directs the Work of Two Full Time Equivalents
An exempt manager must also customarily and regularly direct the work of at least two full-time employees, or their equivalents – meaning that someone who manages four employees on a 20 hour per week schedule would also qualify.
However, two full-time equivalents is the minimum requirement, and is often misleading. Some employers believe that, as long as someone is supervising two other employees, he or she is exempt. This is not correct. As a practical matter, someone who supervises only two employees may only have a small number of managerial tasks to perform in a given day. If that employee instead spends most of her time on manual or other non-supervisory work, a court may find that management is not her primary duty.
Authority to Hire, Fire, Promote, or Demote
Finally, the executive exemption requires that the employee has authority to hire, fire, promote, or demote – or at the very least, offers opinions that are given particular weight. A manager does not have to have absolutely final say in hiring or firing; many companies require a supervisor to obtain approval for personnel decisions from HR, Budgeting, or upper-level management. This kind of review does not defeat the exemption. However, a manager who has only minimal input in personnel decisions, or whose decisions are often reversed by higher management, is not exempt.
As with all exemptions, the critical question involves the employees’ actual day-to-day duties. It is often the case that an employees’ job title sounds impressive, and has a job description listing many managerial tasks, but the reality turns out to be less glamorous. Courts will look past the papers to analyze the reality of the work performed. Moreover, the mere fact that an employee agreed that he would be treated as exempt is entirely irrelevant.
If you have questions about the application of the executive exemption at your company, or believe that you may have been misclassified as overtime exempt, call me at (504) 267-0777 or email me today.