Determining whether your
executive assistants, team leaders, human resources representatives, claims adjusters,
accounting and finance personnel, and a myriad of other administrative jobs
qualify for the administrative exemption from overtime can be challenging. And
now, a
appeals court1
has added
to the headache with a decision that interprets the exemption narrowly. The
ruling also makes it clear that paid time off doesn’t count as hours worked
when you determine overtime compensation. We’ll explain.
Employee Performs
Customer Service
Advanced Business
Integrators, Inc. (ABI), of Sacramento is in the business of selling and
implementing/ installing ABI Mastermind software, which is used by sports and
entertainment venues for scheduling, payroll, and other purposes. During the
implementation phase, ABI sends employees to the customer site to install the
software and train the customer.
ABI hired Michael Eicher
as a consultant at a $60,000 salary. He spent half his time in the office and half
at customer locations providing customer service and training on the Mastermind
software. In particular, he devoted the majority of his work time training
customers on Mastermind and troubleshooting the software for customers. He also
spent time gathering information about customers’ employment practices and entering
customer data into appropriate fields in Mastermind.
The contested requirement was whether Eicher
performed office or nonmanual work directly related to ABI’s management policies
or the general business operations of ABI or its customers
Eicher didn’t hire or
fire employees, negotiate contracts, or consult with ABI or customers about
business policies and practices. ABI monitored Eicher’s hours, requiring him to
account for 40 hours per week (including paid time off or PTO), and it made
salary deductions for his partial-day absences if he had no accrued paid time
off. Eicher frequently worked overtime, but ABI treated him as exempt.
Overtime Claim Filed
When Eicher filed a
claim with the labor commissioner for unpaid overtime against ABI, the labor commissioner
concluded that Eicher qualified for the administrative exemption and therefore
wasn’t entitled to overtime pay. Eicher took his case to a trial court, which
found in his favor, ruling that Eicher wasn’t an exempt administrator.
Paying Overtime: 10 Key Exemption Concepts
Only one thing really matters in the determination as to whether or not an employee is exempt: The duties the employee performs. Learn how to avoid costly, preventable mistakes with our free White Paper, Paying Overtime: 10 Key Exemption Concepts.
Requirements for
Exemption
The appeals court, which
upheld the trial court verdict, explained that under
be construed narrowly, and the employer bears the burden of proving that an
exemption applies. Here, ABI didn’t meet that burden.
The court laid out the
five requirements that must be satisfied for an employee to qualify for the
administrative exemption under
law:
1. The employee must
perform office or nonmanual work directly related to the management policies or
general business operations of the employer or customers.
2. The employee must
customarily and regularly exercise discretion and independent judgment.
3. The employee must
perform—under only general supervision—work along specialized or technical
lines requiring special training; execute—under only general supervision—special
assignments and tasks; or regularly and directly assist a proprietor, manager,
or exempt administrator.
4. The employee must be
engaged in the activities meeting the test for the exemption at least 50
percent of the time.
5. The employee must
earn a salary equal to twice the
minimum wage (which at the current rate of $7.50 per hour means a salary of
$31,200).
Exemption Doesn’t Apply
The contested
requirement was whether Eicher performed office or nonmanual work directly
related to ABI’s management policies or the general business operations of ABI
or its customers. The court explained that the law draws a distinction between
administrative employees, who perform this type of work, and production employees,
who do not. Production employees engage in an activity that constitutes the
company’s primary purpose, and they are not exempt from overtime.
The court concluded that
Eicher’s duties, which primarily consisted of implementing and troubleshooting the
software for customers, were more akin to production work because he was simply
engaged in the core day-to-day business of ABI. What’s more, in coming to the
conclusion that Eicher wasn’t exempt, the court made the novel point that
Eicher had no “personal effect” on the policy or general business operations of
ABI or customers.
Hours Worked, Attorneys’
Fees
The court, however, went
on to find that the trial court improperly included PTO hours in calculating back
overtime, and thus the overtime award of $56,353 plus interest was too high.
The total hours worked each year—the figure the court used to calculate
overtime owed—had erroneously included Eicher’s time off. As a result, the
court reduced the overtime award to $46,617.
Practical Reminder
As a reminder, the types
of work that typically qualify as office or nonmanual work directly related to
management policies or general business operations include: advising
management; planning, negotiating, or representing the company; purchasing
materials and supplies of significant financial impact to the organization; researching
business opportunities; or determining company and/or personnel policies. The
Division of Labor Standards Enforcement offers additional examples on its
website at www.dir.ca.gov/dlse/Glossary.asp?Button1=A#administrative%20exemption.
_
1 Eicher v. Advanced
Business Integrators, Inc.,
Court of Appeals (Dist. 3) No. C051746, 2007