Exempt and Non-Exempt Employees-Are You Sure They Are Properly
Classified?
Sponsored by Thompson Publishing Group
Presented by
Shlomo D. Katz
skatz@brownrudnick.com
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Agenda
 What are key do’s and don’ts when classifying workers?
 What is an FLSA compliance audit?
 What are some “hot topics” in the area of FLSA
exemptions?
 How can employers reduce the risk of being sued for
misclassifications?
 How can employers reduce damages if they are sued
successfully?
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FLSA Basics
 Minimum Wage: $7.25/hr
 Overtime: Normally at 1-1/2 times the employee’s
“regular rate”
 Exemptions: Salary basis and duties tests
 Equal Pay Act
 Child labor
 Recordkeeping
 Penalties
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White Collar Exemptions
 Executive
 Administrative
 Professional
 Computer Employee
 Outside Sales
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Exemption Basics
 Salary basis test
 Employee “regularly receives each pay period on a
weekly, or less frequent basis, a predetermined
amount constituting all or part of the employee’s
compensation, which amount is not subject to
reduction because of variations in the quality or
quantity of the work performed.”
 Seven exceptions
 Applies to Executive, Administrative and Professional
exemptions; can apply to Computer Employee
exemption
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Pay Deductions for Exempt Employees
 It is a violation of the salary basis test to make
wage deductions in exempt employees’ salary
for failure to return office equipment.
 Recoupment of loans and overpayments.
 Not all exempt employees must be salaried.
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Pay Reductions for Exempt Employees
 Employers may require exempt employees to take vacation or
PTO, including for a plant shutdown (W.H. Op. Ltrs. FLSA 2009-2
and -18)
 Employers may reduce exempt employee’s salary corresponding to
a reduction in hours in the normal scheduled work week. (W.H. Op.
Ltr. FLSA 2009-14)
 Must be a bona fide reduction not designed to circumvent the salary
basis requirement, and must not bring the salary below the applicable
minimum salary.
 May not determine the length of the workweek on a week-to-week
basis.
 Employers may institute “voluntary time-off” programs and may
make deductions from salary in full-day increments. (W.H. Op. Ltr.
FLSA 2009-14)
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Pay Reductions for Exempt Employees
 Special Public Sector Rule
 Deductions from the pay of an employee of a
public agency for absences due to a budgetrequired furlough shall not disqualify the
employee from being paid on a salary basis
except in the workweek in which the furlough
occurs and for which the employee's pay is
accordingly reduced. (29 C.F.R. §541.710(b))
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Exemption Basics
 Duties test
 Focuses on “Primary Duty”
 Focus on actual duties, not job titles.
 “Executive Assistant” or “Secretary”?
 “Facilities Engineer” or “Handyman”?
 “Meter Reader” or “Customer Service Representative”?
 “Accountant” or “Bookkeeper”?
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“Primary Duty”
 The term “primary duty” means the principal,
main, major or most important duty that the
employee performs
 Determination of an employee’s primary duty
must be based on all the facts in a particular
case, with the major emphasis on the character
of the job as a whole
 The amount of time spent can be a useful
guide; but time alone is not the sole test.
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Executive Exemption
 Salary Basis -- $455/week
 Primary duty is management of the enterprise or a
customarily recognized department or subdivision
 Customarily and regularly directs the work of two or
more other employees
 Has authority to hire or fire other employees (or
recommendations are given particular weight)
 Owner of bona-fide 20% equity interest would be
exempt if actively engaged in management (does not
need to be salaried)
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Administrative Exemption
 Salary Basis -- $455/week
 Primary duty of performing office or nonmanual work directly related to the
management or general business operations
of the employer or the employer’s customers
 Primary duty includes the exercise of
discretion and independent judgment with
respect to matters of significance
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“Learned” Professional Exemption
 Salary Basis -- $455/week
 Primary duty of performing work requiring
knowledge of an advanced type (defined as
work which is primarily intellectual and varies
in character and which includes work
requiring the consistent exercise of discretion
and judgment) in a field of science or learning
customarily acquired by a prolonged course
of specialized intellectual instruction
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Computer Employees
 Primary duty is:
 Application of systems analysis techniques and procedures,
including consulting with users, to determine hardware,
software or system functional specifications;
 Design, development, documentation, analysis, creation,
testing or modification of computer systems or programs,
including prototypes, based on and related to user or system
design specifications;
 Design, documentation, testing, creation or modification of
computer programs related to machine operating systems; or
 Combination of the above, requiring the same skill level.
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Compliance Audit
 Review exemptions and payroll policies and
practices to determine compliance.
 Find and fix problems before employees
complain
 Strategies for correcting errors
 May be evidence of “good faith”
 Internal vs. external
 “Consultant” vs. legal counsel
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“Hot Topics”
 Department of Labor (DOL) / American Bar Association
collaboration on attorney referrals
 DOL / IRS / state governments announce focus on
“independent contractors”
 Collective actions
 Preparing for winter closures
 “Managers”
 “Outside sales” -- What is a “sale”?
 Interns / trainees / entry-level workers
 Break time for (non-exempt) nursing mothers
 Smartphone app
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Reduce Your Risks
 Tough economic times may subject your company to more wage and
hour suits.
 Update policies and practices to conform with law and regulations.
 Train managers regarding all policies and procedures.
 Avoid the temptation to cut corners.
 Keep handbooks & job descriptions current and accurate.
 Base exemption decisions on actual duties.
 Comply with the salary basis test.
 Document payroll & exemption decisions (and all other personnel
actions).
 Audit your own compliance and make any necessary corrections.
 Know when to fold ‘em!
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Brown Rudnick LLP an international law firm
BOSTON NEW YORK HARTFORD PROVIDENCE WASHINGTON, DC LONDON DUBLIN
www.brownrudnick.com
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(4-16-2012 Employment of Interns and Seasonal Workers)
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