Misclassification as Exempt

The federal Fair Labor Standards Act (FLSA) identifies certain categories of full time workers who are exempt from coverage of the law requiring overtime pay. It should be noted that without this exemption, most workers should be qualified for overtime pay of one-and-a-half-times normal pay for hours worked in excess of 40 each week.  That means if you are qualified for the overtime pay provided for under this law but have not been receiving that pay, you may be entitled to up to three years’ compensation for unpaid overtime, plus additional compensation.

Those employees not required to receive the overtime pay premium are exempted under what is called an executive exemption from coverage under the FLSA law. It requires:

• An employee must have a salary basis of at least $455 per week.
• The employee must be a manager of the enterprise as a whole, or a subdivision or department.
• The employee must typically manage the work of at least two full-time employees.
• The employee must have the authority to hire and fire employees, or make suggestions and recommendations for hiring, firing, advancement, promotion and other change of status for employees working under him.

Employers who misclassify their workers as exempt under FSLA’s executive exemption when these workers do not manage a minimum of 80 labor hours worked weekly by other employees are violating the law.

If your employer classifies you as exempt from the FLSA’s overtime pay mandate as an executive exemption, and you do not meet the test of all four requirements listed above, you may qualify as a misclassified worker and possibly be eligible for up to three years’ compensation for unpaid overtime plus additional compensation.

The FLSA law also has an administrative exemption which requires all three of the following elements:

• The employee must be compensated with a salary at a rate of at least $455 per week.
• The employee’s main responsibility must be office, or non-manual work that is involved in the management or general business operations of the company.
• The employee must have responsibility to exercise discretion and independent judgment as a primary responsibility with respect to matters of significance.

An employee whose primary duty is sales is generally not exempt under the administrative exemption of FSLA.

If you have been not receiving overtime compensation and meet all three of the tests above, you may be entitled to a misclassification compensation for up to three years of unpaid overtime plus additional compensation.

The FSLA law has two professional exemptions: the learned professional and creative professional exemptions. The learned professional exemption requires all of the four following tests:

• The employee must have compensation from a salary at a rate of at least $455 per week.
• The employee’s primary duty must include performance of work that requires advanced knowledge, and considered work which is predominately intellectual in nature and include work requiring discretion and judgment.
• The employee’s advanced knowledge must come from a field of science or learning.
• The employee’s advanced knowledge must be generally achieved from a high level of prolonged specialized intellectual instruction.

Employees who have been misclassified as exempt from the FLSA’s overtime pay requirement because of the learned professional exemption, because they do not meet all four requirements noted above, could be entitled to up to three years of compensation for unpaid overtime, plus additional compensation.

Employees who legitimately meet the FLSA’s creative professional exemption must meet the two tests below:

• An employee must be paid by salary at a rate of at least $455 per week.
• An employee’s basic responsibility is a work responsibility that involves invention, imagination, originality or talent in an established field of artistic or creative pursuit.

An employee who has been misclassified as exempt from the FLSA’s overtime pay requirement as a creative professional, because the employee does meet not both tests noted above, may be entitled to receive up to three years of unpaid overtime, plus additional compensation.

An employee who does office (non-manual) work and is paid at least $100,000, including a minimum of $455 weekly, may be exempt from the overtime requirement if the employee regularly performs one of the duties of an exempt executive, administrative, or professional employee as described above.

The FLSA law has a computer-related exemption. Employees qualify by meeting all three tests below:

• An employee must be compensated with a salary of at least $455 per week or be else have an hourly rate of at least $27.63 an hour.
• An employee must be working as a computer systems analyst, computer programmer, software engineer, or another skilled worker in the computer field.
• The employee’s primary duty must involve one of the following: (1) An application of systems analysis techniques and procedures, which includes consultation with users in determining hardware, software or system functional specifications; (2) work in the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, that also involves prototypes, based on user or system design specifications; (3) work involving the design, documentation, testing, creation or modification of computer programs related to machine operating systems; or (4) work involving a combination of the aforementioned duties.

Employees who have been misclassified as exempt employees and work in the manufacture or repair of computer hardware and related equipment, or in help desk positions, may be eligible for overtime pay compensation claims..

The FLSA law has an outside sales exemption which requires both elements listed below to qualify:

• An employee’s primary duty must in sales or acquiring orders and contracts for services.
• An employee must be typically engaged in an environment external to the employer’s business.

Distinct from other FSLA examples, the employee does not need a specific salary level to qualify for an outside sales exemption. Outside sales persons paid on a commission basis or with a salary plus commissions can still be misclassified as exempt under the FSLA.

Employees who have been misclassified as exempt from overtime pay under the outside sales exemption and who don’t meet both tests above, may be entitled to up to three years of unpaid overtime claims, plus additional compensation.

The FSLA has a retail or service establishment exemption and requires all three of the following tests to comply:

• An employee must work in a retail or service business, which means 75 percent of annual sales is not for resale.
• An employee’s total earnings must include more than 50 percent by commission.
• An employee’s total compensation when divided by hours worked or a regular hourly rate must exceed one and one-half times the federal minimum wage.

An employee who has been classified as exempt from the FLSA’s overtime requirement for the retail or service establishment exemption, and who does not meet all three tests above, may be misclassified by the employer and could be eligible for up to three years of unpaid overtime, plus additional wages.

This page is not all-inclusive for exemptions under the FSLA. Here are some less typical exemptions which may make these employees ineligible for overtime pay.

• An employee working at a seasonal amusement or recreational establishment.
• An employee working in a fishing operation.
• An employee who delivers newspapers.
• An employee who works on a small farm.
• An employee working as a casual babysitter.
• An employee working in sales for an auto, truck, trailer, farm implement, boat, or aircraft company and in a non-manufacturing or primarily a sales establishment.
• An employee working for a railroad or air carrier.
• An employee working as a taxi driver.
• An employee working in domestic services worker and who resides at the employer’s residence.

Employers may change their employee’s exemption status from exempt to non-exempt, meaning those employees suddenly become eligible to receive overtime pay. Occasionally, that classification change comes because the employee misclassified the worker originally, and the worker therefore may have claims for unpaid overtime.

Recently the mortgage industry has seen large scale reclassification of workers involving loan officers and underwriters. These employees may be entitled to up to three years of unpaid overtime compensation, plus other compensation.

The attorneys at Tarshish Cody PLC will schedule a free initial consultation and go over the details of your specific case to determine if you may be entitled to claims for unpaid overtime. Call 952-361-5556 (or fill out the free case evaluation form below).

Attorney Practicing In This Area

Kyle Kosieracki