I have a question about determining the exempt or nonexempt status of our lowest-level managers. We think they are exempt, but we’ve read about some pretty expensive lawsuits and want to avoid that. We classify these employees as exempt, and they seem happy enough with that designation. Most of them are eager to move up our management ladder, and they willingly put in a lot of hours each week. In our bigger stores (we’re a retailer), they are mostly department shift managers, and they spend about half their time on the floor and about half in managerial duties such as scheduling, stock management, discipline, and so on. There are extensive guidelines for them to follow, and a senior manager is always on duty whom they can turn to for advice. In our smaller stores, the managers are on their own; however, they still spend a good deal of time behind the cash register, stocking shelves, and so on. Their district manager usually visits them once a week, and they can call a corporate manager’s help line. Are there some simple guidelines for us to use in evaluating whether we’ve correctly classified these people as exempt?
— Worried in Alameda
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We put this question, which is vexing for most employers, in the hands of Scott Silverman of Morrison & Foerster.
The basic requirement under California law to qualify for exempt status under the executive exemption is that the individual must spend more than 50 percent of his or her time engaged in executive duties, as follows:
(a) managing the enterprise in which he or she is employed or of one of its customarily recognized departments or subdivisions; and
(b) customarily and regularly directing the work of two or more other employees; and
(c) having authority to hire or fire other employees or having his or her suggestions and recommendations on the hiring, firing, advancement, promotion, or any other change of status of other employees be given particular weight; and
(d) customarily and regularly exercising discretion and independent judgment.
With retail managers, the usual issue is whether as a practical matter they regularly spend more than 50 percent of their time on these exempt duties or spend most of their time on the same or similar duties as the nonexempt employees. Because circumstances can vary depending on store or department size, the number of employees supervised, and the complexity of such managerial tasks as ordering, merchandising, and budgeting, the question of exempt status must be analyzed case by case.
Also, be aware that the determination of exempt status is based on whether the employee is performing according to the employer’s reasonable expectations. Thus, if the manager is not doing the amount of exempt work that he or she is supposed to be doing to be considered exempt, but would be spending more than 50 percent of his or her time on exempt tasks if he or she performed the job properly, the person is exempt.
Audit How Managers Spend Their Time
The best approach to determining how much time a given manager is spending on exempt versus nonexempt work is to conduct an audit in the following way:
- Create a checklist of duties, exempt and nonexempt. Determine the average numbers of hours a month spent on each task. It’s a good idea to have a labor attorney review the list to verify that the duties are properly categorized as exempt and nonexempt.
- Calculate whether the amount of time spent on exempt duties exceeds 50 percent. You can ask the managers themselves to complete the checklist or you can interview the managers. Interviewing helps avoid the possibility that the managers do not understand the description of the duties and lends consistency to the process.
It may not be necessary to audit every managerial position, but the audit should cover a sample of the positions reflecting the variety of size of the stores or departments that the managers supervise.
No Easy Answers
In the end, there is no simple guideline for determining exempt status of a manager other than analyzing the duties and counting hours spent on these duties. Your best bet is to conduct your audit now because any problems are just going to multiply as time goes on.
Finally, note that while managers often want to be treated as exempt, they do not waive their right to overtime if they have been misclassified as exempt when they are in fact nonexempt. Thus, it is common for claims for unpaid overtime to be made by disgruntled or terminated managers if they discover after the fact that they were misclassified.”
Scott Silverman is a partner at the Los Angeles office of law firm Morrison & Foerster.