Don’t Forget About the Duties Tests for Exempt Employees

While a federal judge in Texas last week set aside the requirement to pay exempt employees at least $47,476 per year, nothing has changed about the duties tests for exempt employees, and that is where many employers get into trouble. Under the old rules (which are new again), the Department of Labor was collecting $140 million per year for overtime violations.

So even though the judge’s injunction has relieved you as an employer from the obligation to pay yourcowmc8qf8a-crew-1r managers almost $50,000 per year, you still have to be vigilant that you are paying salaries only to those employees who actually are exempt from the Fair Labor Standards Act based on the duties that they perform.

Determining that an employee is exempt from the overtime rules and can be paid on a salary without reference to the number of hours worked each week by that employee has always been a two-step process:

  1. The employee you have designated as a manager, professional or administrative worker must be paid at least $23,660 per year. This is the amount that was in effect before the new rule and the judge’s injunction, which returns us to the status quo of $23,660 per year ($455 per week). But unlike the new rule, bonuses cannot be used to get the exempt employee to that amount. So you have to pay the salary of $23, 660, and,
  2. The employee you are calling exempt must perform certain duties to legally be considered exempt. These duties tests have tripped employers up for years, long before the salary increase was even proposed. And now that the salary increase has been enjoined, your focus as an employer should be back on these duties tests to determine if you really can pay an employee as an exempt, salaried employee without worrying about overtime.

So, in addition to making at least $23,660 per year, your exempt employee must pass all of the duties tests for at least one of the following categories if you want to claim that you don’t have to pay overtime to that particular employee:

Executive Employees Duties Test:

  1. The employee’s primary duty (the most important duty and the one that takes up a significant amount of his/her time) must be the management of a customarily recognized department or subdivision (such as a stand-alone store). Management includes the hiring, training, scheduling, disciplining and supervising of employees and/or the planning and controlling of the budget, workflow, safety and compliance of a department; and
  2. The executive employee must customarily and regularly direct the work of at least two other full-time employees (not full-time equivalents), and
  3. The executive employee has the authority to hire and fire other employees, or at least the executive employee regularly makes recommendations that are relied on in the determination of an employee’s hiring, promotion, firing.

Learned Professional Duties Test:

  1. The employee’s primary duty requires advanced knowledge and is predominantly intellectual in character. The employee’s duties must require constant exercise of discretion and judgment and the employee must analyze, interpret or make deductions from varying facts and circumstances, not just do routine mental work; and
  2. The professional must be working in a field of science or learning, such as law, medicine, accounting, architecture, engineering, or science. If a license, such as a CPA, is available in addition to the academic degree, then the professional must also have the license; and
  3. The professional must have achieved a prolonged course of study to become a learned professional. A high school degree is never sufficient, and neither is a two-year degree. The learned professional must have a minimum four-year degree and often must also have a post-graduate degree. Apprenticeships, on the job experience and general knowledge degrees are not enough to meet this learned professional duties test.
  4. There is also a creative professional duties test that doesn’t require the educational component but does require works of original talent and creativity and generally applies only to cartoonists, actors, musicians, composers, artists, painters and novelists.

Administrative Duties Test:

  1. The administrative employee must be given the primary duty of performing office or non-manual work directly related to the management policies or general business operations of the business. That means that the administrative employee must be performing general (back office) business operations, not sales or production. This includes employees who are running the tax, audit, finance, insurance, procurement, marketing, research, safety, human resources and legal compliance areas of your business; and
  2. The administrative employee must regularly exercise discretion and independent judgment with respect to matters of significance, such as representing the company without supervision in handling complaints, arbitrating disputes, long-term planning, and formulating policies, or having the authority to carry out major assignments, commit the business to significant financial expenditures, negotiate and bind the company to significant commitments and provide expert advice to management. This means that employees doing routine clerical or secretarial work, bookkeeping, recording or tabulating data or following well-established policies or recurrent work are not exempt as administrative employees.

If you have any questions about whether your employees meet these duties test, now is the time to call an employment lawyer and get this issue resolved. Don’t rely on what you have always done or what others in your industry do, because those old habits and “industry standards” are often not legally compliant.

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