Overtime – “Managers” Exempt or Not?

July 6, 2012

You may have recently read that Rite Aid is paying almost $21 million to settle multiple claims that it improperly failed to pay time-and-a-half for hours worked over forty in a week by its managers. State statutes and the federal Fair Labor Standards Act (FLSA) regulate the payment of overtime wages. Careful attention needs to be paid to the so-called white collar administrative and executive exemptions, particularly in view of the increasing numbers of class action suits.

I work with employers who have questions regarding the proper classification of employees. The number one misconception that I still see is the belief that paying an employee an annual salary makes him exempt from overtime payment. Another major misconception is undue reliance on a job title or written description. It does not matter what the title of the job is or what the job description says – what matters is what the employee is actually doing. If the work that the employee performs changes, even if the job title doesn’t, the exemption status can change as well.

The Wage and Hour Division of the United States Department of Labor publishes fact sheets that are a good start in examining your particular situation. To qualify for the administrative exemption, the employee’s primary duty must be the performance of work directly related to management or general business operations of the employer and include the exercise of discretion and independent judgment. The executive exemption applies to those whose primary duty is managing a department, and who customarily and regularly direct the work of at least two full time employees or their equivalent.

There are other specifications with regard to minimum compensation and the terms "primary duty", "management", "customarily and regularly", "discretion and independent judgment" are defined briefly in the Fact Sheets. More detailed regulations and a large body of case law further addresses the exemptions.

We advise employers to periodically review these matters to assure wage and hour compliance and avoid costly misclassifications. This can be accomplished through an internal audit. Employers should speak to an employment attorney regarding any questions they may have. An error with respect to one employee or one group of employees can have a ripple effect throughout the work force that is best avoided by careful advance consideration. Although it may be costly to pay overtime to whole tiers of workers previously paid on straight salary, those costs can be dwarfed by the expense of defending and settling claims. Spending time and money on this issue now could save your organization later.

Christina Hausner is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, PA. She received her law degree from Duquesne University School of Law and has practiced in the area of employment law for over 25 years.