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Legal Clinic

Qualifying Employees for Overtime

Answers this month include a review of the major elements of the Fair Labor Standards Act that determine whether an employee is exempt or nonexempt, and the law underlying when an employer can deduct salary when an exempt worker takes a half-day sick leave.

Monday, June 18, 2007
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This month, we are focused on exempt status under the Fair Labor Standards Act, the federal wage and hour law that governs most employers. While the FLSA requires employers to pay overtime for all hours worked over 40 in a workweek, certain categories of employees, including those employed in a bona fide executive, administrative or professional capacity, are exempt from the FLSA's overtime requirements. 

Determining whether employees qualify for exemptions under these categories can be tricky and very fact-specific. Your questions this month highlight the two major components of any inquiry into exempt status -- the nature of the employee's duties and whether the individual is employed on a salaried basis.

Question: Exempt or nonexempt: We are a construction company working on roads so FLSA applies. We have foremen in the field who have the authority to fire. More than 50 percent of their time is spent directing employees. They are responsible for how the project is done and for the results. They have many more than two employees but they are not always the same employees. Are they exempt or non-exempt?

Answer: To qualify for exempt status, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week. The foremen in question here likely qualify as exempt under the executive exemption.

To qualify for the executive employee exemption, (1) the employee's primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; (2) the employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and (3) the employee must have the authority to hire or fire other employees, or the employee's suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight. 29 C.F.R._§ 541.100. 

Since the construction foremen spend the majority of their time directing the work of two or more employees and have the authority to fire, they likely satisfy each of the parts of the job duties test for the executive employees exemption.

To qualify for this exemption, however, the foremen must also satisfy the salary basis test. Being paid on a "salary basis" means regularly receiving a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. 29 C.F.R._§ 541.602. If the foremen are regularly paid a weekly salary of at least $455, they likely satisfy the salary basis test and therefore would qualify as exempt executive employees.

This answer only addresses the exempt/nonexempt status of employees under federal law. While the federal tests for exempt status were amended in 2004, many states elected not to follow those modifications for purposes of their own wage and our laws. Accordingly, employers are advised to check with local counsel regarding the application of state wage and hour laws.

 

Question: My question is about a salaried employee. If a salaried employee works four hours and then needs to leave for the day, is it correct to use half-day sick or vacation? Is it ever permissible to reduce an employee's salary for taking a partial sick day?

Answer: Your question highlights the issue of whether partial-day deductions will affect a salaried employee's exempt status under the FLSA. The Department of Labor has made clear that reductions in paid leave banks in increments of less than a day are permissible under the salary-basis test. (See Tracey Levy's clarification below.)

Various courts throughout the country have adopted the DOL's position regarding partial-day deductions from paid leave banks. See McDonnell vs. City of Omaha, 999 F.2d 293 (8th Cir. 1993); Lucero vs. Regents of University of California, No. C-91-3999 (N.D. Cal. Aug. 23, 1993); Kuchinskas vs. Broward County, 840 F. Supp. 1548 (S.D. Fla. 1993); Inernationall Association of Firefighters, Alexandria Local 2141 vs. City of Alexandria, 720 F.Supp. 1230 (E.D. Va. 1989).

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Regarding the second question, once an exempt employee has exhausted his/her paid leave bank, the employer may not make deductions for absences in increments of less than a full day. See 29 C.F.R._§ 541.602(b)(2). (Citation revised, please see "reader feedback.")

If an employer makes such a deduction, it jeopardizes the employee's exempt status. 

Under the Secretary of Labor's interpretation of the salary-basis test, as upheld by the Supreme Court in Auer vs. Robbins, 117 S. Ct. 905 (1997), employees may not be considered salaried if they are covered by a policy that permits deductions in pay for partial-day absences as such deductions violate the prohibition of reductions in pay due to the quantity of work performed. 

There is, however, one notable exception to the prohibition on partial-day deductions from pay for exempt employees. If an employee's partial-day absence is for leave taken pursuant to the Family Medical Leave Act, the FMLA regulations specifically provide that deductions from salary for such unpaid leave will not defeat an employee's exempt status under the FLSA. 29 C.F.R._§ 825.206. 

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Clarification: It is important to note that the rules with regard to partial-day deductions generally apply only to private employers. Employees of public agencies may be subject to partial-day deductions from pay for absences due to personal reasons, illness or injury if they exhausted their bank of paid leave, did not receive permission to use available paid leave, or elect to take leave without pay. See 29 C.F.R._§ 541.710(a).

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