A year and a half ago, the industry was a buzz over revisions to the federal wage and hour regulations that require managers be paid overtime if they made less than $47,476 a year, more than doubling the prior $23,660 wage requirement. See Do You Pay Your Managers Overtime? You May Need to Under New Federal Regulation WFCA’s Premier Flooring Retailer (July/August 2016). A week before the rule was to be effective, a federal court enjoined the rule and everyone breathed a sigh of relief. That, however, did not make all managers and supervisors exempt from overtime simply because they were paid a salary of at least $23,660 a year.
As a construction company recently learned, the salary threshold is not the only test that must be met for an employee to be exempt from overtime. A Federal Appeals Court found that two welding inspectors who earned more than $100,000 a year on an annualized basis may still be entitled to overtime pay for the weeks in which they worked more than 40 hours. The construction company argued the two welders were exempt from having to be paid overtime as they were “employed in a bona fide executive, administrative or professional capacity.” The Court recognized that the two welders “were paid in a manner and a rate consistent with being exempt, [but] … these facts do not resolve the question under the test of the regulation.” Rather, the welders’ duties must meet the standard for mangers or supervisors. Hughes ,et. al v. Gulf Interstate Field Services Inc., No. 17-3112 (6th Cir. Dec. 19, 2017).
The Fair Labor Standards Act (FLSA) mandates overtime pay for all employees who are not “exempt.” The regulations governing the FLSA create a three part test to determine whether an employee is exempt: (1) The employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the amount of work performed (the ‘‘salary basis test’’); (2) the amount of salary paid must meet a minimum specified amount (the ‘‘salary level test’’); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the ‘‘duties test’’). For a manager to be exempt from overtime pay under the duty test, they must have the authority “to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, ... [provided] the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.” 29 U.S.C. § 152 (11). The law also exempts from overtime pay “professional employee[s]” who “consistent[ly] exercise … discretion and judgment’ in performing their job.”
It is therefore important that the floor covering dealer ensure that its supervisors and managers have appropriate level of authority to be exempt from overtime. Simply labeling an employee a supervisor, manager or executive and paying them a fixed salary of at least $23,660 does not exempt them from receiving overtime pay under the Fair Labor Standards Act. Given the potential liability, it is recommended that competent legal counsel be consulted to ensure your company is in compliance with the overtime rules.
Notice: The information contained in this article is abridged from legislation, court decisions, and administrative rulings, and should not be construed as legal advice or opinion and is not a substitute for the advice of counsel.