Chances are that you’ve worked overtime trying to get employee classifications right. Between weighing employee wages and job duties, there’s a lot to consider. It’s no surprise that, per Department of Labor (DOL) estimates, over 70 percent of employers get their overtime classifications wrong.
Nowhere is that risk more present than when dealing with the administrative exemption—one of the vaguest clauses in the Fair Labor Standards Act (FLSA), the 70-year-old law that governs overtime pay.
“Matters of Significance”
To qualify as exempt (not eligible for overtime pay), the employee must meet all of the following conditions:
- Earn more than $455 per week, or $23,660 annually
- Perform office or non-manual work involving the management or business operations of the company
- Be empowered to exercise discretion and judgement on “matters of significance”
The sections where we’ve quoted text have been directly pulled from the FLSA itself. Phrases like “matters of significance” have never been fully clarified by the DOL. The law’s vague language is part of the reason why millions in back wages are collected in misclassification suits every year. Even the DOL isn’t immune—last year, the agency paid out $7 million in back wages to its own employees.
Decoding the Rules
That’s the text of the law, but what actually qualifies? Employees qualifying for the administrative exemption do not need to manage others. That being said, they should be empowered to regularly make independent, “on the fly” decisions that can be tied to the performance of the business. Here are some questions to consider when determining classification:
- Can the employee create, interpret, or implement policies and practices?
- Does he or she advise management in any capacity?
- Can the employee sign for the company on financially significant matters?
- Does he or she play a part in planning business objectives?
While clerical or routine work arguably has some impact on the business, much of it is based on well-established standards or techniques. These aren’t exempt duties, because they require only limited independent discretion.
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Job titles are never safe indicators for exemption status, as actual day-to-day responsibilities take precedence. That being said, there are a number of company departments that commonly have workers who qualify. These include human resources, finance, payroll, marketing, and public relations.
Still undecided? For jobs that sit firmly in the grey area, it’s best to err on the side of caution. Remember, classifying an employee as nonexempt is never unlawful. If you’re dead set on making them exempt, though, consult with an employment attorney to get a second opinion.
The administrative exemption is just one of the many rules tied to overtime. Click below to read our free, full guide to the FLSA’s toughest rules.