In order to avoid payment of overtime or minimum wages under the administrative exemption, the employer must prove that the employee is compensated on a salary or fee basis, and has all of the following primary job duties:
- Office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- Exercises discretion and independent judgment with respect to matters of significance.
It is important to note that the phrase “general business operations” is a bit vague, but the FLSA regulations provide the following examples:
Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities.
An area where employers commonly fail to meet this exemption is when the employee does not have “discretion and independent judgment with respect to matters of significance.” Take, for instance, an employee who negotiates contracts, has to follow specific instructions when doing so, and cannot deviate from those instructions. That employee will not be considered an administratively exempt employee. He or she must be paid overtime and minimum wages.
Here are a few specific examples of different types of employee situations that are not exempt under the FLSA…
Example 1: The Employee is Not Engaged in Office or Non-Manual Work
An employee is paid a salary of $1,000 per week. He works on oilfield drilling sites performing safety tests with air monitoring devices or other tools. He performs this work for his employer as well as the employer’s customer. This employee is non-exempt, and owed overtime and minimum wages under the FLSA. The reason is the employee’s work is not office work or non-manual labor.
Example 2: The Employee Does Not Exercise Either Discretion or Independent Judgment on Significant Matters
An employee receives a salary of $700 per week as a dispatcher for a tow truck company. She follows tow truck driver work schedules set by the dispatch manager, relays communications between management and the tow truck drivers, and performs clerical-type work.
In most cases, that dispatcher will generally be considered non-exempt and due overtime and minimum wages. The reason is that she has no discretion or independent judgment on significant matters.
If, however, she decides the type of tow truck needed for a job, or is authorized to enter into contracts with a third party without a supervisor’s approval, she will likely be considered exempt from overtime and minimum wage pay. Likewise, if the dispatcher has the ability to rent a bigger tow truck from a third-party company to complete a particular job, she will likely be considered exempt.
Example 3: The Employee is Not Paid on a Salary of Fee Basis
An employee is paid $10 per hour plus a commission of 10% of the sales generated from making sales calls to customers. He makes those calls using customer contact information provided by the employer.
This employee would generally be non-exempt and due overtime and minimum wage pay. The reason is that he is not receiving pay on a salary or fee basis. Generally, a “salary” means a fixed amount of pay in excess of $455 per week regardless of the numbers of hours worked.
A “fee basis” is when an employee is paid a fixed amount of money for a single job. For example, a person is paid $800 to remove boxes of closed office files to a recycling facility, and the task takes 40 hours to complete. As stated by the FLSA regulations, payments based on the number of hours or days worked – and not on the accomplishment of a given single task – are not considered payments on a fee basis.