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THE WAGE AND HOUR EXEMPTION REQUIREMENTS

11/1/2008 - WORKING THROUGH THE MAZE OF FEDERAL EMPLOYMENT REGULATIONS

In the United States, employers face the challenge of complying with a host of state and federal employment regulations that affect how you hire your employees, what you do with them while you have them and – in the event that they leave you, whether voluntarily or involuntarily – the regulations affect the way they leave, so that they stay gone, and do not come back to haunt you in terms of back pay, reinstatement and bad publicity. Other countries have different regulations, but America has more employment regulations than any other country in the world. For most employers, the most critical challenges involve the Wage and Hour requirements and the payment of overtime. Three key principles of Wage and Hour compliance are:

1. Every week stands alone. You can pay your employees weekly, bi-weekly, semi-monthly or monthly, but you must always account it to a weekly basis. This means, for example, that “Comp Time” for non-exempt employees is not allowed.

2. The Way is more important than the Amount. In Wages and Hours, it’s not so much the amount of money you pay your employees, as it is the way you pay them. Indeed, it’s possible that you could pay your employees a very high rate, yet still owe them overtime, if the pay plan itself is not in compliance with the regulations.

3. All Time Worked must be recorded and paid. Time worked by an employee is any time an employee is performing work, regardless of whether you authorized it or even knew about it, and even if it is not recorded on the time card. Thus, if a non-exempt employee is coming to work early and staying late, or taking work home at night, the employer is responsible for make sure that this time is recorded and the employee is paid for it. Also, some travel time is regarded as time worked.

ARE EMPLOYEES EXEMPT OR NON-EXEMPT? OVERTIME OR NO OVERTIME?

“How do I know if I have to pay overtime to an employee?” According to Wage and Hour enforcement policy, employees are classified either “exempt” or “non-exempt.” Non-exempt employees must receive overtime for all hours worked in excess of 40 per week (the requirement is 40 per week, not 8 per day, except in a few states) while exempt employees do not receive overtime, no matter how many hours they work. The key principle is that non-exempt employees are paid for the time they work on the job, while exempt employees are paid for job itself, regardless of time worked. These are called “full exemptions” because employees who meet the requirements are exempt from (1) minimum wages, (2) timekeeping and (3) overtime. It would be nice if we could classify all employees as exempt, but according to the regulations, it is very difficult to meet the exemption requirements and, as a result, we find that most employees are non-exempt. Here is a summary of the 5 exemptions:

A SUMMARY OF EXEMPTIONS FROM OVERTIME AND TIMEKEEPING

• The Executive Exemption covers employees who perform management responsibilities that involve supervision. This includes many executives, managers and department supervisors who supervise the equivalent of 2 or more full time employees and the majority of whose work involves supervision and management. These employees must receive a guaranteed salary not subject to deduction. Employees who have limited supervisory duties and who perform a significant amount of non-exempt work are usually not exempt, such as lead persons, line coordinators or assistant managers.

• The Administrative Exemption covers employees who perform management responsibilities that may not involve supervision of employees, but may involve the management of assets or a specific management function. These employees must also receive a guaranteed salary not subject to deduction. The exemption includes controllers, purchasing agents, graduate accountants, Human Resources managers, and loan officers in banks, and requires the significant use of “discretion and independent judgment.” In essence, these employees must be decision makers themselves or must develop sophisticated reports and recommendations on which others rely in making decisions. Executive secretaries and Administrative Assistants are usually non-exempt.

• The Professional Exemption covers employees who are generally regarded as professional and who possess extended learning or a specialized degree, such as teachers, physicians, Registered Nurses, CPA’s, consultants, certified general engineers, Respiratory or Physical Therapists and Medical Technologists. Technicians (radiology, ultrasound, EKG, et. al.) are almost always non-exempt.

• The Outside Sales Exemption applies to employees who are engaged in sales activity outside of the workplace. Inside sales employees are by definition non-exempt.

• The Technical exemption is relatively new and applies to certain employees in Information Technology or Management Information Services. This often includes the Manager of Information Technology, systems analysts, programmers and software engineers, but does not include technicians.

OTHER OVERTIME EXEMPTIONS MAY HELP MANAGE YOUR PAYROLL COSTS

In addition to the full exemptions, here is a summary of some partial exemptions that apply in specific situations. A “partial exemption” means that an employee must keep a time record and receive at least the minimum wage but is exempt from overtime.

• Crossing State Lines. Employees who regularly cross state lines in the course of their work are automatically exempt from overtime. Thus, an employee at work who travels from Blacksburg, Virginia, to Bluefield, West Virginia, would cross the state line and would be exempt from overtime on that basis.

• Employees Paid Primarily By Commission. An overtime exemption (called 7(i)) is available to employees of a “retail or service” business who are paid primarily by commissions and whose pay each week is more than time and one-half the minimum wage. A pest control employee might qualify for this exemption, for example, as would many workers in an automobile dealership, including the Finance and Insurance Manager. The definition of “retail or service” is problematic in that the Department of Labor does not recognize certain employers, like banks or laundries, as service establishments. Also, contractors whose customers are primarily commercial in nature are not “retail or service.”

• Agriculture. Employees who are employed 100% in agriculture are exempt from overtime, but the key here is 100%. If the 100% requirement is not met, the exemption is not available.

• Special Exemptions for Automobile and Truck Dealerships. Sales employees in an automobile or truck dealership are automatically exempt from overtime, if their primary duty is sales. The same is true for mechanics and parts employees. However, wrecker drivers, painters, oil and lube employees, lot persons, detailers and telephone solicitors do not qualify under this exemption (although some may qualify under 7(i)).

• Other Special Exemptions. Other exemptions may be available in specific circumstances and industries, such as seasonal employment and the airlines industry. In those cases, we always want to take a close look to analyze the facts thoroughly and make sure the exemption applies.

RECORDKEEPING REQUIREMENTS FOR YOUR PROTECTION

The burden of proving that an employee qualifies for exemption is on the employer. The best way to document an exemption is, first, to make sure the job duties and responsibilities qualify for exemption and, second, to document the duties in a comprehensive job description and specifically state therein that the position is exempt.

Non-exempt employees must keep a true and accurate record of their hours of work each day, either by hand, time clock, logging in on the computer, swiping an identification card, or using a biometric system. It is the responsibility of management, not the employee, to make sure the time records are accurate. Remember that a non-exempt employee who works more than 40 hours in a week is subject to overtime compensation, even if the overtime work was not approved and even if the employer did not know the employee was working. And, if you grant a break to your employees, the break must be a paid break, unless it is at least 30 minutes long and completely uninterrupted.

CONCLUSION - AT THE END OF THE DAY, WHERE DO WE GO FROM HERE?

This Seay Management Report summarizes some of the exemptions but there are many more facts to consider in each individual case, including some exceptions. And, some states have specific provisions that may play a part. In order to avoid financial exposure, it is critical to thoroughly analyze the duties and responsibilities of each employee you consider for exemption, and to make sure that the employee qualifies for it. If you are a Seay Management retainer client, we do this for you each year during our annual Human Resources Management Audit. If you are not a retainer client but have an interest in this service, please contact Sandy at sandy@seay.us, and we will provide you with the information you need. And if you have a question about these exemptions, or any other Human Resources Management issue, please call or email your Seay Management Consultant. We are always very glad to talk with you.



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