The FLSA: Attack of the overtime

“What do you do?” We have heard that question a thousand times. It is one of those standard conversation pieces along with: “What do you think of this weather?” and “How about that local sports team!” Every time you meet someone new, it is a virtual guarantee that you will hear: “So, what do you do?” For some people the answer to this question is straight forward: “I am the President of the United States of America” or “I am Batman.” There will almost certainly be follow-up questions, but you get a pretty good sense of what that person does for a living.

I like to think I am on the other end of the job-title spectrum. The term attorney is expansive. An attorney could do anything from bankruptcy to outer space law (that is a real thing). What I do at PIA is a particularly niche field of law. Over the years, I have worked on perfecting my answer to the above-noted question. I say I am in-house counsel for a trade association. I like this response for multiple reasons: first, it is true, even if it doesn’t tell the whole story. Second, people understand that in-house counsel is an actual type of attorney and that trade associations are a real thing. Third, its equal parts vague and impressive, like saying you are a Grand Moff of the Galactic Empire. I have no idea what a Moff does (actually, I do because I’m a nerd[1]), but if you are a Grand Moff you clearly are doing something right.

Unfortunately, just because we say we are something doesn’t mean we necessarily are, a fact that is reflected in the Fair Labor Standards Act overtime regulations.

The FLSA: A new hope

The FLSA was enacted in 1938 and essentially created the modern workplace. The FLSA introduced the 40-hour workweek; established a minimum wage; created the definition of an employee; and guaranteed the payment of overtime in certain jobs.

Along with creating the minimum wage and overtime standard, the FLSA—like any good law—also created exclusions to those standards. The focus of much of the FLSA’s provision, including overtime, was to protect blue-collar workers. Many of the exemptions in FLSA almost exclusively apply to white-collar workers.

The regulations to the FLSA created exclusions for five types of white-collar jobs: executive, administrative, professional, outside sales employees and certain computer employees.

Exemptions: The DOL strikes back

The U.S. Department of Labor wanted to make sure that employers did not list all their employees as executive (fill in the blank) to avoid the requirements of the FLSA. To prevent this from happening, regulations were promulgated to require employees to qualify for the exemptions by meeting certain criteria. For an employer to claim a white-collar exemption for a particular employee, three tests need to be satisfied. First, the employee must be paid on a salary basis that is not subject to reduction based on the quality or quantity of work performed.

Second, the employee must earn a salary that is at least equal to the minimum-salary threshold established by DOL regulations—$23,660 annually ($455 per week) in 2019. On Jan. 1, 2020, the threshold will increase to $35,568 annually ($684 per week).

Third, the employee’s job duties must primarily involve those associated with exemption: executive, administrative, professional, outside sales or computer employees. This is the so-called duties test. Let’s take a more in-depth look at each of these tests as they apply to the executive, administrative and outside sales-force exemption, the exemption most likely to apply to the professional, independent agent community.

Salary one

The first requirement to qualify for an exception is that the employee be salaried. Pretty straightforward. If an employee is being paid on an hourly basis, even if that figure would total more than the minimum-salary threshold, he or she would not be exempted from the overtime regulation and would be required to be paid overtime for any time worked over 40 hours. So, the employee must be salaried and that employee’s salary cannot be subject to reduction based on quantity or quality of work. It is important to point out that the first test does not apply to the outside sales-force exemption as salary requirements for this particular exemption do not exist.

The salary threshold rises

The second requirement to qualify for an exception is the employee must be paid at least $23,660 annually ($455 per week).[2] On Jan. 1, 2020, the threshold will increase to $35,568 annually ($684 per week).[3] For an employee who qualifies for the outside sales-force exemption, the salary requirements of the regulation still do not apply—a minimum-salary threshold does not exist.

The duties test awakens

The rubber meets the road with the duties test. Under each of the tests, employees must primarily perform the job duties of the exemptions for which they are looking to qualify. So, what is a primary duty? It is defined as the principal, main, major or most important duty that the employee performs. This definition is designed to be vague. The DOL has stated that the determination of an employee’s primary duty is to be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole. There is no minimum amount of time that an employee must spend performing the primary duty, although the regulations do note that employees who spend more than 50% of their time on exempt work are likely to be exempt. Still, employees who spend less than 50% of their time on exempt work may still qualify for an exemption.

It is important to remember that while the definition of primary duty is the same for each exemption; each exemption has a different primary duty in which an employee must fit to qualify.

To qualify for the executive-employee exemption, the employee’s primary duty must be the managing of the enterprise or managing a customarily recognized department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent. He or she must have the authority to hire or fire other employees or their suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.[4]

For an employee to qualify for the administrative-employee exemption, the employee’s primary duty must be the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers; and the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.[5]

To qualify for the outside sales-force exemption, the employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and the employee must be customarily and regularly engaged away from the employer’s place or places of business.[6] Many producers will fit into this outside sales-force exemption.[7]

So, the next time someone asks you, “What do you do?” You now can respond with an FLSA-compliant answer of, “Well, I consider myself to be an executive, as my primary duty 50% of the time I am at work is the managing of an enterprise, a customarily recognized department or subdivision of an enterprise.” On second thought, just say you are Batman.

Compliance: the DOL returns

If you are an employer, then the FLSA imposes extra duties on you whether you run an insurance agency, rebel alliance, or Jedi Council. First, employers must post notice for their workers of their rights regarding overtime pay and minimum wage regulations.[8] The postings must be in conspicuous places where employees may readily read and review their rights. Office break rooms or cantinas often serve as convenient locations for such postings.

Next, an employer is required to maintain records on nonexempt workers documenting their name, address, age, and other identities along with work hours, pay rate, and pay basis. The DOL has conveniently created Fact Sheet 21, to assist employers meet these record keeping requirements. Payroll records must be kept for at least three years while basic employment and earnings records, along with wage rate tables, must be maintained for at least two years.[9] The records must be safely maintained and accessible at the place of employment.[10]

For employers not in compliance with the FLSA, the DOL may take action to enforce the regulations. Typically, the DOL will attempt to have the offending employer modify its practices and make good on any back pay before pursuing further sanctions. Intentional violators are more likely to face criminal prosecution, which could lead to fines of up to $10,000 with further intentional violations leading to penalties of $1,000 per violation.

Regardless of who you may be employing or the function of your work, if you are an employer, it is vital to comply with the FLSA requirements for non-exempt employees. It may seem like extra work, but compliance now has the potential to save you time and money in the future.

This article originally appeared in the November 2016 issue of PIA Magazine.

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[1] Grand Moff was the title given to the Regional Governor of Oversectors, high-priority territories within the Galactic Empire. The position of Grand Moff was considered to be the sixth highest in the Galactic Empire.

[2] https://www.dol.gov/whd/overtime/fs17g_salary.htm

[3] https://www.dol.gov/newsroom/releases/whd/whd20190924

[4] http://www.dol.gov/whd/overtime/fs17b_executive.htm

[5] http://www.dol.gov/whd/overtime/fs17c_administrative.htm

[6] http://www.dol.gov/whd/overtime/fs17f_outsidesales.pdf

[7] http://www.dol.gov/whd/opinion/FLSA/2009/2009_01_16_28_FLSA.htm

[8] 29 CFR 516.4

[9] 29 CFR 516.5(a); 29 CFR 516.6(a)(1) and (2)

[10] 29 CFR 516.7(a)