$35 million lesson: Not all managers are exempt from OT
January 27, 2009 by Sam NarisiPosted in: FLSA, In this week's e-newsletter, Latest News & Views, Overtime
As all HR pros know, most managers don’t get paid overtime. But, as one company recently learned the hard way, not everyone with the title of “manager” is exempt.
More than 1,400 store managers recently sued Family Dollar Stores, Inc., claiming they weren’t payed OT they were owed.
The employees regularly worked 60-70 hours a week, but, like most employees classified as managers, they were considered exempt.
The managers were the highest-level employees in their respective stores. Therefore, the company argued, it was clear that they should qualify for the exemption.
But that wasn’t enough for the court, which ruled that the actual duties of the jobs made them nonexempt positions. For example:
- The store managers were closely supervised by district managers
- Store managers spent roughly 80% of their time on manual tasks like running registers, stocking shelves, cleaning the store and unloading trucks, and
- Virtually all managerial decisions, such as scheduling shifts, setting store hours, and hiring and firing employees, were made by district managers — store managers simply carried out those decisions.
Family Dollar was forced to give the managers a total of $35 million for unpaid OT.
What managers are exempt?
Given the confusion over who’s really exempt, how can HR figure out who needs to be paid OT?
The court cited the FLSA’s criteria for the executive exemption. To be exempt, managers must:
- be paid a salary of at least $455 per week
- have management as a “primary duty”
- direct the work of at least two full-time employees, or an equivalent number of part-timers, and
- have the authority to hire, fire and promote — or at least have significant influence on those decisions.
Cite: Morgan v. Family Dollar Stores, Inc.
Tags: exempt, Family Dollar, managers, OT, overtime
January 28th, 2009 at 9:51 am
This is a very confusing area. What is the criteria for making a position exempt? In my last position, the company had three main offices and the accounting team has 3 staff accountants and one senior accountant – the senior accountant and 1 staff accountant (located in MN office) were exempt and the other 2 accountants (located in TN office) were paid hourly. The duties were basically the same. Aren’t they asking for trouble?
January 28th, 2009 at 11:02 am
I am not sure where the confusion seems to be as the law is very clear. Where the confusion exists is the attempt to make the requirements fith the job verses the job meeting the requirements. Sometimes it is “just the way we have done things” or a company simply realizes the cost of overtime. The title “manager” does noty a manager make.
January 28th, 2009 at 11:20 am
I have worked in payroll/benefits for 30 years and have always been paid hourly. My current job is salary exempt (no overtime). I do make more than 455 wk however I work alone and have no management duties and do not have the authority to hire or fire.
January 28th, 2009 at 11:41 am
This is a touchy subject because of the cost of overtime. Many owners feel that putting the word “manager” in someone’s title exempts them from overtime. In many instances owners feel that the part that says the “Manager” must be able to hire, fire or promote or have a significant influence on those decisions really is put into their job description to cover part of the law but in essence that “manager” really doesn’t do that function. What is an employee to do? If you want the truth retaliation is what we employees fear most. Yes there are laws against it but believe me some company owners and managers spend a lot of time trying to figure out how to retaliate without it appearing like they are. I myself have been classified as a manager so that I don’t receive overtime and I don’t qualify. What can I really do about it? Live with it or risk losing my job due to retaliation.
January 28th, 2009 at 12:22 pm
There are a number of different test to determine whether the individual is entitled to overtime.
Here is one being used for Not-for-Profit Organizations. This is from the DOL Website – link provided.
“Exempt” means exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act, or FLSA. In order to qualify as “exempt” an employee my meet the requirements of two tests: (1) the duties test; and the (2) salary test.
One of the most common mistakes all employers make, including nonprofits, is to base the determination of exempt vs. non-exempt status on an employee’s title. Under the law, it’s the employee’s actual duties that matter, not the title you assign. Keep in mind, it’s okay if you decide to designate employees who are eligible for “exempt” status as non-exempt, as long as you pay them accordingly. This means that you need to pay these employees overtime for all hours worked over 40 per week. But don’t make the mistake of the reverse classification: it’s never okay to classify non-exempt employees as “exempt” – no matter how compelling your reason for doing so (e.g. “We can’t afford overtime, we’re small and it’s much easier to have all of our employees in the same classification,” etc.).
Professional exemption
• Does the employee work in a field that requires advanced knowledge and education or involves original and creative work in an artistic field?
• Does the employee regularly exercise discretion and judgment in their work?
• Is the employee’s work intellectual and varied in character, and of a nature that it cannot be accomplished according to a fixed time schedule?
• Is the employee’s salary at least $170 per week?
• Does the employee devote no more than 20% of their time to nonprofessional functions?
I am providing a link to the DOL Website.
http://www.elaws.dol.gov/flsa/screen5.asp
January 28th, 2009 at 12:43 pm
Wow! I worked for a major shoe retailer for 16 years. I knew I had a claim back then and should have followed my instinct. it went as far as we were even told when and what hours we had to work per week. If I could go back and make a claim I would!
January 28th, 2009 at 12:48 pm
Use these link instead……
http://www.dol.gov/elaws/esa/flsa/screen75.asp
http://www.dol.gov/esa/whd/regs/compliance/fairpay/main.htm
January 29th, 2009 at 10:05 am
I am in the process of changing some employee from exempt to non-exempt. Some were managers at one time (managing facility) but now are doing work that does not include supervising staff. Another was just hired in with a base salary and commission, as if he was in sales but he is better described as a “route” man who delivers to customers. I am getting push back from the VP of one because it will cost him more to pay the overtime. The other, the manager is OK with the overtime but knows he has been getting a deal with him being exempt.
The question when going to non-exempt is what is their hourly pay? I don’t want to convert their current salary to hourly since overtime was built into their salary. I am going to have to cut their rate substantially otherwise they will end up making $80,000 this year as an hourly production/driver. Any help with that would be appreciated.
January 29th, 2009 at 2:35 pm
Maggie:
Reclassifying employees whose job duties do not meet the DOL exemption requirements may not be easy, but you should convince the managers that complying with federal law will help protect the company from possible lawsuits! Take it out of management’s hands — the change should be presented as the company deciding to comply with the federal government, not necessarily any manager’s wishes to save on OT pay.
One way to convert an annual salary to an hourly rate and maintain the same wages when regular overtime is expected, is to estimate and include the expected overtime in the calculation. Lets say that a position is expected to work 50 hours per week. 40 of those hours will be paid at the base hourly wage, and ten will be paid at the overtime rate. Say the salary is $30,000 per year. In order to get 40 hours per week at a base wage, plus 10 hours per week at 1.5x the base wage, divide 30,000 by 2860, to get $10.49/hour. ($10.49 x 2080 = 21,819.20 + 520 overtime hours/year at $15.74 = $30,004/year.)