I have recently had a series of questions from business
owners who are looking to reduce expenses, specifically
expenses associated with overtime (OT).
The idea that most owners arrive at when looking to reduce
expenses is to reduce OT by moving employees from
Non-Exempt positions (commonly called “hourly”) where OT
must be paid if worked, to Exempt positions (commonly
called “salary”) where employees do not receive OT.
HR CONTRARIAN POINTER: Most employers get this wrong.
They know that there is a minimum weekly salary that must
be paid, but they are either unaware of or try to talk
around the “duties” test.
Here is the 3-point test for determining whether someone
qualifies as an Exempt Employee under the Administrative
Guidelines of the Fair Labor Standards Act:
1. Is the employee compensated on a “salary basis” of not
less than $455.00 per week (computes to $23,660/yr)?
2. Does the employee’s “primary duty” consist of
performance of non-manual work “directly related to the
management or general business operations” of the employer
or the “employer’s customers?”
3. Does the employee’s “primary duty” include the exercise
of “discretion and independent judgment” with respect to
“matters of significance?”
An answer of NO to any of the 3 questions means that an
employee cannot be classified as Exempt. The big problem
for employers is that the items in the 3-point test above
that are in quotation marks have very specific meanings
and judicial interpretations, which make the application
on this test more difficult than meets the eye.
As an example, every business owner that I have talked to
has been shocked to find out that 99% of bookkeepers do
not meet this 3-point test despite the fact that they have
highly responsible and confidential positions.