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.