Exempt classifications under the fair labor standards act. (Legal).

Many employers fall into the trap of thinking that they have complete discretion to designate employees as exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act. It is not unusual, for example, to see an employer attempt to reward an able administrative assistant by promoting the employee to exempt status, even though the employee's duties do not legally qualify as exempt. Employees may be classified as exempt only if they meet one of various specific exemptions detailed in the act and its complex implementing regulations. In this column, Jennifer Hopeman clarifies some of the more common overtime exemptions and related regulations that associations should take into consideration when designating exempt status.

The federal Fair Labor Standards Act (FLSA) requires employers to pay their employees 1 1/2 times their regular pay for each hour exceeding 40 hours that they work in any given workweek, unless they are exempt from that entitlement.

Establishment of exempt positions for employees is determined by specific tests outlined by the Department of Labor; important factors include determination of an employee's primary duties and basis of payment (salary rather than hourly wage).

Primary duty requirements

The three FLSA exemptions that are most likely to apply to employees of associations are the executive, administrative, and professional exemptions. To be considered exempt, the employee's job duties must satisfy specific criteria as defined by FLSA classifications of those categories, descriptions of which follow.

Executive status. For an employee to meet the executive exemption, his or her primary duty (as a general rule, those tasks occupying at least 50 percent of the employee's time) must consist of managing the business enterprise, or a department or subdivision of the enterprise. Examples of management functions include selecting and training employees, directing their work, appraising their performance, responding to complaints, and handling disciplinary matters. In addition, an exempt executive must regularly supervise two or more full-time employees, or the equivalent in part-time employees, and generally must wield significant influence in hiring and firing decisions.

Administrative role. To satisfy the administrative exemption, an employee's primary duty must be administrative in nature, rather than production- or sales-related, and must be performed at a responsible level, not merely as part of routine clerical duties. Work that is administrative in nature includes activities such as advising the management, planning, negotiating, representing the company, purchasing, promoting sales, conducting business research, or otherwise controlling the business. In addition, the employee's primary duty must include work requiring the exercise of "discretion and independent judgment." In general terms, this means that the employee is making independent decisions that will substantially affect some aspect of the employer's business. It also means that the employee's job involves making judgment calls, as opposed to merely applying knowledge or skill to follow prescribed procedures.

Professional position. The professional exemption requires that an employee's primary duty consist of work requiring advanced knowledge in a field of science or learning (generally, an advanced degree is required), work as a teacher in an educational institution, or work in a recognized field of artistic endeavor. Further, the employee's primary duty must either include work requiring consistent discretion and independent judgment, or it must consist of work requiring imagination and talent in a field of artistic endeavor. Examples of typically exempt professionals include lawyers, doctors, registered nurses, scientists, pharmacists, accountants, musicians, and painters. Certain types of writers may be exempt professionals, but only those whose work is analytical, interpretive, or highly individualized. While many associations typically would not employ workers in many of these fields, there are clearly associations and professional societies that may employ writers, lawyers, and other professionals who may f all into this exemption category.

There is a special exemption for computer professionals (such as systems analysts, programmers, and software engineers) whose primary duties consist of analyzing, designing, or developing computer systems or programs based on consultation with users. Exempt computer professionals need not be paid on a salary basis, provided they are compensated at a rate of at least $27.63 per hour (in California, $42.64 per hour). No degree is required for this exemption, but it applies only to highly skilled employees who work independently. It does not cover trainees, entry-level employees, or employees who repair computer hardware and equipment.

Salary requirements of exempt status

Generally, each of the exemptions requires that the employee be paid on a "salary basis" of at least $250 per week.

To meet the salary basis requirement, an employer generally must pay an exempt employee his or her full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Only limited exceptions to this rule exist.

1. An employer may deduct from an exempt employee's salary for absences of one or more full days if the employee is absent for personal reasons, or if the employee is absent due to sickness or disability and either has exhausted his or her paid leave under the employer's sick leave or disability benefit plans or has not yet qualified for paid leave under the applicable plan.

2. An employer may impose salary deductions for major safety violations. Since safety violations must be of an extreme nature, such as smoking in an explosives plant, this rule is unlikely to apply to an association setting.

3. Finally, an employer may deduct for hours taken as intermittent or reduced schedule leave under the federal Family and Medical Leave Act.

Except in the limited circumstances just described, deductions from an exempt employee's salary for absences of less than one full week are impermissible. An employer may not, for example, deduct from an exempt employee's salary for absences of less than one full week caused by jury duty, attendance as a witness, or temporary military leave. Since improper deductions can negate an employee's exempt status, employers should carefully review their personnel policies and practices to ensure that such deductions do not occur.

Repercussions of inaccurate job classification

An employer who incorrectly classifies an employee as exempt and fails to pay overtime may face harsh legal consequences, including liability for back pay, liquidated damages, and attorney fees. Therefore, it is a sound practice to audit job classifications periodically, with the assistance of counsel experienced in employment law.

Jennifer Hopeman is an associate and Jerald A. Jacobs is a partner in the law firm of Shaw Pittman, Washington, D.C. Jacobs edits this column and is general counsel to ASAE.