The Administrative Exemption Under Federal Overtime Law

Another major overtime exemption is the “administrative” exemption.  Remember that “exempt” employees are not entitled to overtime, ever, no matter how many hours they work.   So what are the requirements for an exempt administrative employee?

A few easy things off the top.  First, any employee, regardless of job title or duties, must generally be paid on a salary or flat fee basis to be eligible for the administrative exemption.  Hourly workers are almost never within the scope of the overtime exemptions.  Second, this is an area where I encounter lots of fancy-sounding titles, like “premiere executive assistant to the president.”  But job titles don’t mean anything in overtime cases.  What matters is what the employee does, not the employee’s title, so bestowing the employee who fetches your coffee and bagel every morning with a grand title will not be enough to confer exempt administrative status on that person.

Now we move on to the harder areas of the administrative exemption.  To qualify an employee as administratively exempt, an employer must prove that the employee engages in (a) office or nonmanual work, which is
(b) directly related to management or general business operations of the employer or the employer’s customers, and (c) a primary component of which involves the exercise of independent judgment and discretion about (d) matters of significance.  A lot of lawyers’ blood gets spilled fighting over those four components of the administrative exemption test.  An employer has the burden of establishing each aspect of the test in order to prove that an employee is exempt administrative.

The administrative exemption is designed for relatively high-level employees whose main job is to “keep the business running.” A useful rule of thumb is to distinguish administrative employees from “operational” or “production” employees. Employees who make what the business sells are not administrative employees. Administrative employees provide “support” to the operational or production employees. They are “staff” rather than “line” employees. Examples of administrative functions include labor relations and personnel (human resources employees), payroll and finance (including budgeting and benefits management), records maintenance, accounting and tax, marketing and advertising (as differentiated from direct sales), quality control, public relations (including shareholder or investment relations, and government relations), legal and regulatory compliance, and some computer-related jobs (such as network, internet and database administration).

To be exempt under the administrative exemption, the “staff” or “support” work must be office or nonmanual, and must be for matters of significance. Clerical employees perform office or nonmanual support work but are not administratively exempt. Nor is administrative work exempt just because it is financially important, in the sense that the employer would experience financial losses if the employee fails to perform competently. Administratively exempt work typically involves the exercise of discretion and judgment, with the authority to make independent decisions on matters which affect the business as a whole or a significant part of it.

Questions to ask might include whether the employee has the authority to formulate or interpret company policies; how major the employee’s assignments are in relation to the overall business operations of the enterprise (buying paper clips versus buying a fleet of delivery vehicles, for example); whether the employee has the authority to commit the employer in matters which have significant financial impact; whether the employee has the authority to deviate from company policy without prior approval.

Merely clerical work may be administrative, but it is not exempt. Most secretaries, for example, may accurately be said to be performing administrative work, but their jobs are not usually exempt. Similarly, filing, filling out forms and preparing routine reports, answering telephones, making travel arrangements, working on customer “help desks,” and similar jobs are not likely to be high-level enough to be administratively exempt. Many clerical workers do in fact exercise some discretion and judgment in their jobs. However, to “count” the exercise of judgment and discretion must be about matters of considerable importance to the operation of the enterprise as a whole.

Overtime cases require legal analysis of federal statutes, U.S. Department of Labor regulations, and court decisions.  I can help you with any employment law or labor law questions that you might have.  Please feel free to contact me for a free initial consultation about employment law or labor law.

 

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