The Managerial Overtime Exemption, and How to Keep It – 2018 Update

The federal Fair Labor Standards Act requires employers to pay employees at least minimum wage for every hour (or fraction) worked, and to pay overtime (at time-and-a-half) for all time exceeding 40 hours in a week.

Some states and cities have wage and hour laws that require payment of a higher minimum wage, or require (as in the case of California) overtime to be paid for any hours worked in excess of 8 in a day.  This latter rule could be a trap for the unwary, because the daily overtime rules apply even if the employee works fewer than 40 hours in a week.

The FLSA does make some employees exempt from the overtime rules.  One of the most commonly used exemptions is for managerial employees whose spend more than 50% of their time actually performing managerial duties such as planning, scheduling, budgeting, hiring, and firing. As with the OT rules, check your state and local rules to see if there are any additional requirements for meeting the managerial duties requirements.

Employers need to do the following in order to benefit from the managerial exemption:

First, create written job descriptions for each position in the company.  Make sure each one spells out the essential functions of the job.  This is important not only for proper exempt-nonexempt classification, but also in the event an employee (or job applicant) requests a reasonable accommodation under the Americans with Disabilities Act.

Then, ensure that people hired or promoted into managerial positions actually spend more than 50% of their time each week doing managerial tasks.  Just having the right job description isn’t enough.  It needs to be rigorously enforced.

Finally, ensure that each employee is paid at least the minimum annual salary required to qualify for the exemption.  As of late January 2018, the minimum weekly salary is $455.00 per week, but the U.S. Department of Labor is expected to propose it be increased and possibly indexed for inflation. Be ready to audit your payroll practices if the minimum salary is increased!

Employers would be well served by regularly auditing their businesses to ensure each managerially exempt employee is (a) being paid at least the minimum salary; (b) actually performing the appropriate duties; and (c) continuing to meet the exemption requirements after any change in pay or job duties.

What are the risks if employees are misclassified?

Amazon was sued by a former warehouse shift manager who claims that he was forced to spend substantially all of his time doing manual labor.  He says he should have been classified as non-exempt and been paid for the overtime he worked. The former manager also says that several other shift managers were treated similarly, and is seeking to have the suit approved as a class action.  If he convinces the court to approve the class action, Amazon will be at risk for enormous damages (for back wages, interest, unpaid taxes, fines and penalties) and attorney fees.

Employers need to be vigilant about ongoing compliance with the exemption requirements.  Don’t just classify an employee as an exempt manager and consider the matter closed!

Michael Oswald

Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.

© 2018 Michael S. Oswald



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