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  • John H. Ray, III

The Myth That Salary Precludes Overtime

Even sophisticated employers equate overtime with hourly employment. But the Fair Labor Standards Act ("FLSA"), the federal law requiring that employers pay overtime for hours worked in excess of 40 hours per week, does not have a generic salary exemption (and on December 1, 2016, the salary ranges for the minimum nonexempt and maximum exempt salary increased significantly). Call it a workplace legend, that continues to linger, instead of dying around the water cooler, where it seems to percolate. It is a myth, however. And it causes employees to lose significant wages each year. There is no "salary" exemption under the FLSA. But there is a relatively short statute of limitations, the period of time you have file to file a claim to recover lost wages. It is two years, three if the employer acted willfully in failing to pay overtime wages. See 29 U.S.C. § 255(a).

While there is a laundry list of exemptions, see 29 U.S.C. § 213, the ones most applicable to the average employee are the following:

(1) Highly Compensated Employees. If you (a) receive a salary above $134,004 a year, including salary, commissions, nondiscretionary bonuses, and other nondiscretionary compensation, and (b) you primarily work in an office, rather than a manual labor job, you can probably stop reading. You are more likely than not an exempt employee, and not entitled to overtime (but you still have to customarily and regularly perform any one or more of the duties or responsibilities of an executive, administrative or professional employee, below, so you may want to consider reading further). 29 U.S.C. § 213(a)(1); 29 C.F.R. § 541.601.

(2) Executive, Administrative and Professional Employees. If you regularly perform all the duties or responsibilities of an executive, administrative or professional employee, and you earn more than $47,476 a year, then you are also exempt.

Professional. This exemption applies to both learned and creative professionals. A learned professional is, for example a lawyer, doctor, dentist, architect, or clergy. To be an exempt professional, an employee's position must require (a) as his or her primary duty, the performance of work requiring advanced knowledge, which is defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; (b) advanced knowledge in a field of science or learning; and (c) a prolonged course of specialized intellectual instruction (e.g., advanced degrees beyond high school, and usually beyond college, or similar experience).

Another type of professional is the creative professional, whose "primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor," like actors, musicians, composers, writers, cartoonists.

Administrative. An administrative employee is less well defined. To be an exempt administrator, an employee's position must require as his or her primary duty (a) 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 (b) the exercise of discretion and independent judgment with respect to matters of significance. These can include positions such as human resources, payroll and finance, records maintenance, accounting and tax, marketing and advertising, public relations, but only those where the employee as a primary duty exercises discretion and independent judgment with respect to matters of significance. There are no bright line tests, which makes this particular category less obvious.

Executive. The executive exemption is directed to management positions, not merely because "manager" is in the title, but where there is a significant level of supervisory authority. To be an exempt executive, an employee's position must require as his or her primary duty (a) managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; (b) customarily and regularly directing the work of at least two or more other full-time employees or their equivalent; and (3) 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.

Just receiving a salary is not enough. But these determinations can be relatively complex and are very fact specific. This summary is intended to provide a brief overview of the general issues, but the best advice is to consult an attorney a full analysis and determination.

This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. For more information, or to discuss potential representation, contact Ray & Counsel, P.C.