In yesterday’s Advisor, Fentin helped us understand the huge dollar risks in mistaken exemption decisions. Today, how to determine if your employees meet the tricky administrative exemption rules, plus an introduction to a checklist-based HR audit system.

Fentin, who is a partner in the Springfield, MA offices of labor and employment firm of Skoler, Abbot & Presser, P.C., is Associate Editor of the Massachusetts Employment Law Letter. She spoke at a recent webinar hosted by BLR/HRhero. She was joined in her presentation by attorney John S. Gannon, an associate at her firm.

Test for Primary Duties—Administrative Exemption

There is a two-part test for primary duties under the administrative exemption, says Fentin. They must involve:

1. Performance of office/non-manual work directly related to management or general business operations
2. Exercise of discretion and independent judgment as to significant matters

(Reminder: If these people have direct reports, they may qualify for exemption under the managerial exemption, Fentin says.)

1. Primary Duty Office/Non-Manual Work

Generally employees with an administrative exemption do back office work. Their duties must be directly related to assisting with the running or servicing of the business, as distinguished, say, from working on a manufacturing production line or selling a product in a retail or service establishment. For example:

• Tax, finance, accounting, budgeting, auditing
• Insurance and quality control
• Purchasing and procurement
• Advertising, marketing, public relations, research
• Safety and health
• Personnel management, human resources, employee benefits, labor relations
• Computer network, internet/database administration(good alternative to computer exemption if that doesn’t apply, Fentin notes)
• Legal and regulatory compliance and government relations

The actual percent of time spent on the administrative task may not matter says Fentin, but the administrative task must be the most important task.

2. Discretion and Independent Judgment as to Significant Matters

This second part of the test is often the hardest part, Fentin says. The determination is highly fact-dependent. Consider the following in assessing discretion and independent judgment, Fentin says:

• Takes action independently after comparing possible courses of conduct. Example: A Credit Manager reviews supplier creditworthiness and makes a decision whether to extend credit.
• Freedom from immediate supervision is important, Fentin adds, but the person does not have to have the final word.
• Independent judgment must be more than applying established techniques or adhering to specific standards or pre-set procedures.

In assessing whether significant weight is given to the person’s recommendations, consider:

• Whether making suggestions is part of job duties
• Frequency of recommendations
• Extent to which recommendations are relied upon

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Generally, says Fentin, if two or three of the following factors are satisfied the employee is involved in matters of significance:

Does the employee

• Have authority to formulate, affect, interpret, or implement management policies or operating practices;
• Carry out major assignments in conducting the operations of business;
• Perform work that affects business operations to a substantial degree;
• Have authority to commit employer in matters with significant financial impact;
• Have authority to waive or deviate from established policies and procedures without prior approval;
• Have authority to negotiate and bind company on significant matters;
• Provide consultation or expert advice to management;
• Become involved in planning long-or short-term business objectives;
• Investigate and resolve matters of significance on behalf of management;
• Represent company in handling complaints, arbitrating disputes, or resolving grievances

Fentin recommends that if you have concerns about making an exemption decision or think it’s a close call, check with your employment attorney who will know about relevant court decisions, rulings, opinion letters, and so on.

Exemptions, pay ranges, incentive pay, government crackdowns—a few of, what, a dozen policy issues you’re dealing with today? How can you be sure your systems are operating according to policy? There’s only one way—regular audits. The rub is that for most HR managers, it’s hard to get started auditing—where do you begin?

BLR’s editors recommend a unique product called HR Audit Checklists. Why are checklists so great? Because they’re completely impersonal, forcing you to jump through all the necessary hoops one by one. They also ensure consistency in how operations are conducted. That’s vital in HR, where it’s all too easy to land in court if you discriminate in how you treat one employee over another.

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HR Audit Checklists compels thoroughness. For example, it contains checklists both on Preventing Sexual Harassment and on Handling Sexual Harassment Complaints. You’d likely never think of all the possible trouble areas without a checklist; but with it, just scan down the list, and instantly see where you might get tripped up.

In fact, housed in the HR Audit Checklists binder are dozens of extensive lists, organized into reproducible packets, for easy distribution to line managers and supervisors. There’s a separate packet for each of the following areas:

• Staffing and training (incorporating Equal Employment Opportunity in recruiting and hiring, including immigration issues)
• HR administration (including communications, handbook content, and recordkeeping)
• Health and safety (including OSHA responsibilities)
• Benefits and leave (including health cost containment, COBRA, FMLA, workers’ compensation, and several areas of leave)
• Compensation (payroll and the Fair Labor Standards Act)
• Performance and termination (appraisals, discipline, and termination)

HR Audit Checklists is available to HR Daily Advisor readers for a no-cost, no-risk evaluation in your office for up to 30 days. Visit HR Audit Checklists, and we’ll be happy to arrange it.