Employers: Is Your Assistant Manager Actually Exempt?
The New York Times recently published an article entitled “You’re Now a ‘Manager.’ Forget About Overtime Pay,” which discusses the common problem of miscategorizing low-level managers as Exempt.
For those unfamiliar with the Fair Labor Standards Act (FLSA), it requires all employees to pay all employees overtime and minimum wage (or higher) unless the employee fits into one of a few exemptions.
The FLSA provides the following exemptions:
Employees of a seasonal or recreational establishment (e.g., carnivals, summer camps, winter backcountry guides, ski clubs, etc.)
For this discussion, I’m focusing on the Executive Exemption, which requires the following:
The employee is paid on a salary basis (not hourly) of at least $684 a week;
The employee’s primary duty (more than 50% of their time) is managing the business or a department or subdivision of that business;
The employee manages at least two or more other full-time employees or equivalent;
The employee has the authority to hire or fire employees or has significant influence in the hiring, firing, and promoting of employees.
How many assistant managers have this kind of authority? How about shift managers, coffee cart managers, or desk supervisors?
While the article views misclassifications through the lens of exploitation, other less nefarious reasons exist for exempt classifications. Often employees prefer the status and treatment of an exempt employee. They want to feel like and be treated as a professional in their chosen career. Many employees would rather avoid timesheets or punching the clock. Any employment lawyer or HR professional who has had the unfortunate task of reclassifying exempt employees has experienced the anger and pushback from employees who perceive reclassification as a demotion, even though they may see their income rise. Ironically, complying with the FLSA can backfire for the employer in attracting and retaining talent and employee morale.
However, failure to comply can have serious financial consequences. Violators of the FLSA are subject to the following remedies:
Payment of back wages (and because the employer has not been keeping track of hours, those wages are often based on employees’ reports of hours worked)
Additional liquidated damages equal to the amount of the back pay
Employee’s attorney’s fees and court costs
Injunction
$1000 civil penalty for each violation (for willful or repeated violations)
For California employers, misclassification can lead to even more severe consequences, as non-exempt employees are entitled to overtime and rest and meal periods, and employers are subject to record-keeping penalties. Misclassifying just a handful of employees can lead to penalties and back wages in the hundreds of thousands of dollars. Also, with California’s PAGA law (Private Attorneys General Act), individual employees are empowered to bring an action to recover state penalties and can recover attorneys’ fees, incentivizing the plaintiff’s bar to bring an action for the tiniest infractions.
Employers can conduct an audit to determine FLSA compliance. Consider using counsel to manage the audit to protect the findings and audit report from discovery in later litigation*. If the employer finds violations, consider whether job responsibilities can be expanded or if reclassification is necessary. With thoughtful planning, employers can minimize liability and employee discontent when reclassifying.
*Wage and Hour audits can also determine if the employer is calculating overtime appropriately and complying with equal pay and discrimination laws.
Content is provided for educational and informational purposes only and is not intended and should not be construed as legal advice.