Many thought it ironic in mid-August when news broke that the U.S. Department of Labor (DOL) had agreed to a $7 million settlement in a 10-year-old dispute with its own employees and their union. The same agency charged with policing how employers comply with the wage and hour law apparently had compliance problems of its own. The case shows how difficult it can be to properly classify and pay employees falling under what’s perhaps the grayest area in wage and hour law—the administrative exemption. 
The American Federation of Government Employees Local 12 announced the settlement on August 12, bringing an end to the case that began in 2006 when the union filed a collective action grievance on behalf of its members working for the DOL in the Washington, D.C., area. The union claimed that employees were forced to work overtime without being properly paid. But figuring out who should be exempt from overtime pay gets tricky.
The Fair Labor Standards Act (FLSA) requires that employees be paid at least time and one-half their regular rate of pay for any hours they work beyond 40 in a workweek—unless they fall under one of the exemptions in the law. To be exempt, employees have to meet both a duties test and a salary test.
The salary test has gotten a lot of attention recently, since a new regulation more than doubling the weekly pay threshold is set to take effect on December 1. Currently, exempt employee must earn at least $455 a week ($23,660 a year) to meet the salary test for exemption. That amount will jump to $913 a week ($47,476 a year) on December 1.
Is your organization in compliance with the new overtime classification rules from the Labor Department, effective December 1, 2016? For a plain-English review of employer obligations—and how to meet them—download BLR’s new comprehensive report, New Overtime Regulations: Classifying Exempt and Nonexempt Employees Under the FLSA. In just over 50 clear and concise pages, you’ll find answers to your FLSA compliance questions, plus detailed guidance to help you manage requirements, keep your costs under control during this transition, and communicate with your affected employees about their new nonexempt status. For more information, click here.
Administrative exemption confusion
In addition to meeting the salary test, exempt workers must meet the duties test, meaning that they must perform executive, administrative, or professional work as their primary duty in order to be classified as exempt from the FLSA. The administrative exemption often causes confusion.
“In many ways the administrative exemption is the most difficult and dangerous to use,” Jo Ellen Whitney, an attorney with the Davis Brown Law Firm in Des Moines, Iowa, says. “It has no hard and fast examples for what qualifies the employee for the exemption. Unlike the executive exemption, it does not have a clear line, such as supervising two or more employees, to serve as a benchmark.”
Instead, workers classified under the administrative exemption often fall into a gray area. “Essentially you are not the boss, but you ‘exercise discretion and independent judgment with respect to matters of significance,’” Whitney says.
In considering the administrative exemption, the DOL has found that workers who simply apply rules and standards don’t qualify for the exemption, and that appears to have been the issue for the DOL employees affected by the settlement, Whitney says.
“Another issue may have been ‘off the clock work,’ such as missed lunches,” Whitney says. “Many employees miss lunch where they are automatically docked for a ‘lunch break’ or have issues with travel time but never report the problems because the process for doing so is too complex or time consuming.” The situation is particularly difficult with employees who are off the clock but still responding to work-related emails and text messages, she says.
Classification challenging
So how difficult is it to properly classify workers? “Very difficult,” Whitney says, “especially in evolving companies or areas.” Employers have to be careful even when using the more clearly defined executive exemption, she says.
For example, if an exempt employee meets the test for exemption by supervising two or more people but one of those people is out on leave under the Family and Medical Leave Act for a significant period of time, that supervisor may lose the exemption for the weeks he or she supervised just one person. Also, if an exempt employee spends too much time doing the same work that nonexempt employees do, the exemption may not apply.
For the administrative exemption, which was the issue in the DOL case, “you also have the problem that it is a misunderstood and poorly defined exemption that has historically been subject to misuse and abuse,” Whitney says. Also, front-line supervisors will be the culprits in wage-hour disputes if they make it difficult for employees to account for time, push them to work without accounting for time, or something similar.
The DOL case shows how “even the guys who enforce the rules don’t really understand how they work,” Whitney says. “Plus, even the DOL is subject to job creep—where duties and areas of focus change, but the exemption status doesn’t keep pace,”
Advice for employers
Since getting exemptions right can be so challenging, Whitney advises employers to stay away from the administrative exemption if at all possible. “It is poorly defined and most employees won’t be able to articulate how they independently manage matters of significance,” she says. “You can write the best job description in the world, but if it doesn’t match what the employee tells the DOL, the job description will be tossed aside for the ‘real world’ description.”
Whitney also advises employers to regularly review job descriptions and exemption status to make sure the real duties match the written ones. “Finally, train front-line supervisors in what you expect in the wage-hour context.”
Not sure if your job descriptions would hold up to the “real world” test? If your job descriptions and your employees’ actual duties don’t line up, you could be facing stiff fines, penalties, and costly lawsuits if you’re found liable for misclassifying overtime-eligible employees as exempt. With the Department of Labor’s new overtime rules set to go into effect on December 1, now’s the perfect time to review those job descriptions and classifications. Join us for Monday, September 13, for the live virtual workshop Job Descriptions Crash Course: Expert Drafting Tips for Maximum Effectiveness and Compliance. This five-session workshop will cover step-by-step directions for gathering information for and drafting job descriptions, addressing wage and hour concerns ahead of implementation of the DOL’s final overtime exemption rule, ensuring the you stay ADA-compliant, and more. For more information, click here.