Archive for March, 2016

Professional Employees . . . Hey, that’s Me!

This is the last of the big three, the Professional Exemption. And this one is a bit more like the Executive in that it is a bit more straightforward and easy to understand. So let’s get down to it. To be eligible for a Professional Exemption you must:

(a) The term ‘employee employed in a bona fide professional capacity’ in section 13(a)(1) of the Act shall mean any employee:

(1) Compensated on a salary or fee basis at a rate of not less than . . . and (yes, I took this out again, but not all of it this time. Yes, the salary rate is going to change, but for this one it is not just a salary, but you can also pay on a fee basis. Look it up at 29 CFR §541.605).

(2) Whose primary duty is the performance of work;

(i) Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or

(ii) Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

29 CFR §541.300.

So we have a couple of different kinds of “professionals” here. This first is “Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.” That is a “Learned Professional.” The second is “Requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” That is a “Creative Professional.” What’s the difference? Let’s look.

(a) To qualify for the learned professional exemption, an employee’s primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. This primary duty test includes three elements:

(1) The employee must perform work requiring advanced knowledge

(2) The advanced knowledge must be in a field of science or learning; and

(3) The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

29 CFR §541.301.

To keep this short,

(b) The phrase ‘work requiring advanced knowledge’ means work which is predominantly intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical or physical work. Id.

(c) The phrase ‘field of science or learning’ includes the traditional professions of law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other similar occupations that have a recognized professional status as distinguished from the mechanical arts or skilled trades where in some instances the knowledge is of a fairly advanced type, but is not in a field of science or learning.

Id.

And finally,

The phrase ‘customarily acquired by a prolonged course of specialized intellectual instruction’ restricts the exemption to professions where specialized academic training is a standard prerequisite for entrance into the profession.

Id.

So what we are talking about here? Doctors, lawyers, engineers, teachers CPAs are professionals under this definition, but not HR professionals and paralegals are not.

So what about “Creative Professionals”?

(a) To qualify for the creative professional exemption, an employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work. The exemption does not apply to work which can be produced by a person with general manual or intellectual ability and training.

29 CFR §541.302.

Again, we get some nice explanations in the Regulations.   “To qualify for exemption as a creative professional, the work performed must be ‘in a recognized field of artistic or creative endeavor.’” Id. “The requirement of ‘invention, imagination, originality or talent’ distinguishes the creative professions from work that primarily depends on intelligence, diligence and accuracy.” Id.

There are also special rules for Teachers and the Practice of Law or Medicine, but I’m not going to get into those. See you next time.

Administrative Employees. And, no, this does not mean that the receptionist is exempt.

The second of the White Collar Exemptions we are going to discuss is the administrative exemption. Why, you ask, is this the next one we are going to discuss? Because it is next in the Regulations. Now, we could have saved it for last and we could have done that because it is clearly the most complex, least well-defined of the Exemptions. Let me show you.

(a) The term ‘employee employed in a bona fide administrative capacity’ in section 13(a)(1) of the Act shall mean any employee:

(1) * * * (this is the Salary Level Test, and as I told you last time, I took this out because it is about to change)

(2) Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

(3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

29 CFR §541.200.

You can see already why this one is a bit more complex. The second requirement is pretty simple and straightforward. To start with, the primary duty has to be the performance of “office or non-manual work.”   OK, simple enough, it is not somebody who works on a production line or in a plant making a product. But what does “related to the management or general business operations” mean?

(a) To qualify for the administrative exemption, an employee’s primary duty must be the performance of work directly related to the management or general business operations of the employer or the employer’s customers. The phrase ‘directly related to the management or general business operations’ refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.

29 CFR §541.201.

Well that’s very helpful . . . not. Fortunately, that is not all the Regulations provide us. They give us some examples.

(b) 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. Some of these activities may be performed by employees who also would qualify for another exemption.

29 CFR §541.201.

OK, I get it now, it is support functions like HR and advertising and marketing. It is not stuff like, say, facilities management – you know, the janitors. That makes some sense. But that is not all. In addition to being a staff rather than a line function, the employee must “exercise discretion and independent judgment with respect to matters of significance.” What?

(b) The phrase ‘discretion and independent judgment’ must be applied in the light of all the facts involved in the particular employment situation in which the question arises. Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives; whether the employee investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.

29 CFR §541.202.

Come on, that is not helpful at all. Here is what we do know – the receptionist is not exempt. What we also know is that this standard requires that “the employee has authority to make an independent choice, free from immediate direction or supervision. . . .”  Id. So determining if someone meets this standard is a bit of an art rather than the more straightforward application of requirements under the Executive Exemption. This is also the sort of “catch all” category that employers tend to throw people in when they don’t know what else to do with them, and the one that causes the most trouble. Not often that you get a misclassified supervisor or professional (although it does happen from time to time). Very often you get a misclassified administrative employee. To help, the Regs give us examples. I’m not going to put them all in here, because the Regulation is very long, but go look at 29 CFR §541.203.

And one more thing. Before you go and classify your mortgage loan originators or paralegals as exempt, give us a call. Because they are not, and it will save you in the long run.

 

Executive Employees: That’s the People in Charge

OK, so last time we talked about improper deductions from an exempt employee’s pay. There are some other Regulations in that part, but we are not going to go into them as they don’t come up all that often.

Instead, we are going to move on to what I hope are the last 5 posts on the FLSA before we try to find another topic to write about: the heart of the so-called White Collar Exemptions. We talked about them back here. We have already discussed the Salary Basis Test and the Salary Level Test and now, over the next 5 posts, we will talk about the duties tests and call it a day.

We start with the bosses. The Executive Employees. To be an Executive Employee, you must:

(a) The term ‘employee employed in a bona fide executive capacity’ in section 13(a)(1) of the Act shall mean any employee:

(1) * * * (this is the Salary Level Test and I took this out because it is about to change);

(2) Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;

(3) Who customarily and regularly directs the work of two or more other employees; and

(4) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

29 CFR §541.100.

Pretty simple, right? Basically it means you are a manager or supervisor of two or more employees. But, if you work for a smaller company, for example, it might also mean you are an owner:

The term ‘employee employed in a bona fide executive capacity’ in section 13(a)(1) of the Act also includes any employee who owns at least a bona fide 20-percent equity interest in the enterprise in which the employee is employed, regardless of whether the business is a corporate or other type of organization, and who is actively engaged in its management. The term ‘management’ is defined in §541.102. The requirements of Subpart G (salary requirements) of this part do not apply to the business owners described in this section.

29 CFR §541.101.

Management means basically what you would think it means:

… activities such as interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.

29 CFR §541.102.

The Regulations also tell you what a “Department or Subdivision” means at 29 CFR §541.103, that “two or more other employees” means “two full time employees or their equivalent”, 29 CFR §541.104; what “particular weight means when determining if an employee has the ability to effectively recommend, for example, hiring or firing”, 29 CFR §541.105; and finally, what happens when an employee has concurrent duties, 29 CFR §541.106.

The concurrent duties section is particularly important when it comes to managers in the retail setting. The Regulations recognize that in retail, different rules apply:

(b) For example, an assistant manager in a retail establishment may perform work such as serving customers, cooking food, stocking shelves and cleaning the establishment, but performance of such nonexempt work does not preclude the exemption if the assistant manager’s primary duty is management. An assistant manager can supervise employees and serve customers at the same time without losing the exemption. An exempt employee can also simultaneously direct the work of other employees and stock shelves.

29 CFR §541.106.

See, pretty simple, right? You bet it is, but don’t worry, it will get more complex as we go.