Misapplying the exemptions can cost companies a lot of money.

TAC Worldwide, a Massachusetts-based staffing firm, has just agreed to pay $1.8 million in back wages to 973 employees who sued for being mistakenly classified as exempt from OT.

Most of the affected employees held IT-related positions. Job titles of those who sued include: network engineer, help desk representative, technical writer, software tester and network administrator.

A common classification mistake is focusing on title rather than actual job duties. Employees may have titles that sound exempt — but employers still need to look at what those employees do on a daily basis and make sure the duties match up with at least one of the Fair Labor Standards Act’s OT exemptions.

For more information on the exemptions, click here.

Cite: Chao v. 888 Consulting Group, Inc.

Read the facts of this real-life case and decide: Who won?

The facts:

The employee worked as a mortgage underwriter. Under the company’s payment system, underwriters were paid a salary of at least $48,000 a year and classified as exempt. They had quarterly reviews, and their salaries could go up or down, depending on how many loans the employee had processed — but the pay could never fall below the $48,000 floor. The employee sued for unpaid overtime, claiming the wage policy failed to meet the salary basis test required for OT exemption.

The employer said:

The employees were guaranteed a salary that complied with the FLSA’s exemption rules. Wages could go up or down based on performance, but employees always made at least $48,000.

Who won the case?

Answer: The employer.

Why: Most of the OT exemption rules require that employees are paid based on a predetermined salary and that their pay isn’t reduced based on quality or quantity of work.

However, the FLSA also makes an allowance for employees who receive a “minimum guarantee plus extras” — for example, a salaried employee can still receive variable bonuses or commissions and be considered exempt.

In this case, the $48,000 was the guaranteed minimum, and anything beyond that was an “extra.” The court ruled the payment practice met the salary basis test, and the employee’s case was thrown out.

Cite: Havey v. Homebound Mortgage, Inc.

The computer professional exemption.

It’s a common misconception that all jobs involving computers are exempt. But in fact, the FLSA’s computer employee exemption is very narrow, covering only employees who earn more than $27.63 per hour or $455 per week and:

• apply “systems analysis techniques and procedures,” such as consulting with users to determine hardware or software needs
• design, develop, create, test or modify computer programs based on user design specifications
• design, develop, create, test or modify programs related to operating systems, or
• perform a combination of those duties that requires the same level of skill.

Some examples of employees who don’t qualify for the exemption: employees who repair hardware and help desk professionals whose only job is to fix users’ problems.

Note: IT employees who don’t meet the requirements for the computer professional exemption may still be exempt, based on the FLSA’s administrative, executive or professional exemptions.

Figuring out which employees do and don’t need to be paid overtime is one of HR’s most confusing tasks. Here are some common slipups the Department of Labor is looking for.

These are big OT mistakes made by many employers, according to labor law attorney Micheal Lorenger:

1. Making all salaried employees exempt — Even if you don’t pay workers an hourly wage, they’re owed overtime if they don’t meet one of the FLSA’s specific exemptions. Most of the exemptions require employees to be paid a salary, but that’s only one test out of several.
2. Improperly deducting from a salaried employee’s pay — For employees to pass the salary test under the FLSA, the company can’t deduct their pay based on quality or quantity of work (except when an employee misses an entire day), or for lost or damaged equipment. Companies can still make workers pay for equipment they damage — you just can’t take the amount directly out of someone’s paycheck.
3. Misclassifying assistant managers — In most cases, managers are exempt from OT — but don’t make the mistake of lumping assistant managers in with them just because of their title. The key is the amount of authority the assistant has. In big departments, they might have the power to make their own decisions regularly. In other cases, the assistant’s job might just be to make sure the manager’s decisions get carried out.
4. Misinterpreting the “administrative” exemption — Though the same terminology is used, the administrative OT exemption has nothing to do with administrative assistants. In fact, most admins do not qualify for an exemption. The administrative exemption refers to people involved in general business operation who use “discretion and independent judgment” in their work.
5. Not correcting previous mistakes — If a company realizes an exemption was misapplied, many companies do nothing and hope no one notices. That’s the easiest option in the short term — but it’s also the easiest way to end up in court fighting a claim for back pay.

Question: A full-time exempt employee recently started working a part-time job with us to pick up some extra cash. Is he still exempt?

Answer: That depends on the nature of his work. Employees are either exempt or nonexempt — they can’t be placed into two categories when they work two different types of jobs.

According to a Department of Labor Opinion Letter (FLSA 2005-14), the answer is based on the employee’s “primary duty.” In other words, if his main role is still performing exempt work, then he’s exempt across the board.

But if the primary duty is nonexempt work, then he gets overtime pay for hours worked in both jobs.

A woman sued her employer, claiming she was owed overtime that was never paid.

The problem: She didn’t have any proof she ever worked more than 40 hours a week, and she couldn’t even name specific times when she allegedly worked overtime.

So, her case was thrown out, right? Wrong.

Turns out, the employee had evidence that the company didn’t keep accurate records of the hours employees worked. The woman managed a store and had the only set of keys — therefore she had to be there to open and close the store.

But on some days, company records showed work hours inconsistent with the hours the store was open.

Normally, it’s up to an employee to prove he or she worked overtime and didn’t get paid. But in this case, the court ruled, doubt was cast on the accuracy of the company’s own records.

Therefore, the company had the burden to prove no overtime was worked — which it couldn’t do.

Cite: Brown v. Family Dollar Stores of Indiana, LP

Here’s what happened:

A group of managerial employees sued their employer for unpaid overtime. They claimed they spent more than half of every day doing clerical work and therefore were incorrectly classified as exempt.

The court didn’t agree. Under current wage and hour regs, it doesn’t really matter how much time employees spend on different types of work. The important question is whether or not someone’s “primary duty” involves exempt work.

The time test can be a good rule of thumb, the court said, but it’s also possible for employees’ primary duties to take up less than half their time. Other factors to consider include:

• relative importance of managerial duties compared to the other work
• the employee’s freedom from direct supervision, and
• the reason the employee’s position exists.

In this case, the court found the employees’ jobs existed primarily to manage other workers — the clerical duties were just incidental to the managerial work. Therefore, they were exempt from overtime.

Cite: Desmond v. PNGI Charles Town Gaming, LLC

The facts:

The company changed the way it scheduled shifts to reduce the number of overtime hours. Some workers objected to the change, and a line supervisor complained to upper-level management on their behalf. Soon after, he was fired for poor performance. He claimed it was because of his complaint, and he sued for retaliation.

The employer said:

Employees can only sue for retaliation if they complain about a violation of the law. But the schedule change was perfectly legal, so the man had no reason to sue.

Who won the case?

Answer: The employer.

Why: The court pointed out that companies can get hit with retaliation claims without having broken the law in the first place. But that’s only if the employee believes the law was broken and files a complaint accordingly.

In this case, nothing in the supervisor’s complaint had anything to do with the legality of the schedule change — he just said his workers were upset about losing the OT hours.

Cite: Hagan v. Echostar Satellite, LLC

The facts:

A group of employees sued, claiming their commutes counted as “hours worked” under the FLSA. Why? The employer required them to carry documents to and from work. The employees said lugging big briefcases around extended their commutes significantly. Some claimed to frequently miss public transportation and said it was a hassle to have to go straight home every day.

The employer said:

How the employees got to the workplace was their own business. They weren’t being asked to work while they were commuting, just to carry files with them for security purposes.

Who won the case?

Answer: The employer.

Why: First, the court agreed that employees could still use the commute time however they wished — i.e., they didn’t have to work while on the way to work. Therefore, the time wasn’t compensable.

Also, even if the employees’ argument was true, the time added to the commutes was considered “de minimis” — that is, too brief to make it practical for the company to track it.

Another lesson: It’s important to note that if employees chose to do work while on the train, the time would’ve been compensable.

Cite: Singh v. City of New York

An employee sued her employer after she was denied FMLA leave because she failed to meet the 1,250-hour requirement.

She claimed she worked more than enough hours. Her calculation included “bonus hours” she was paid for working weekend shifts. For example, if she picked up a Saturday shift, the company gave her 10 extra hours of pay for that week.

The court didn’t buy it. The judge said the “hours worked” only includes time an employee is “required to give” an employer. Extra pay, even if it’s measured in hours, doesn’t make a difference.

What counts?

The FMLA’s 1,250-hour requirement only includes time that counts as “hours worked” under the Fair Labor Standards Act (FLSA) — in other words, only hours in which work is done, that must be paid for and that count toward overtime calculations.

So, for example, the 1,250 hours would not include:

1. paid or unpaid vacation and sick time
2. paid holidays, or
3. previous periods of FMLA leave.

Cite: Mutchler v. Dunlap Memorial Hosp.