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Administrative exemptions to overtime pay

On Behalf of | Apr 25, 2023 | Employment Law

Working extra hours can be a drag, but many workers enjoy the benefit of overtime pay. The federal Fair Labor Standards Act spells out rules for overtime pay, providing that most workers will receive at least one-and-a-half times their hourly rate when they work overtime. However, the law exempts certain types of employees. One such exemption is for administrative employees.

Burden of proof on employers to show employees meet criteria

Many employees consider themselves “administrative” in a business sense. The legal criteria for the classification, however, requires satisfaction of a three-prong test. Administrative employees must:

  • Make at least $684 a week
  • Perform duties directly related to management or general business operations of the employer or its customers
  • Employ discretion and independent judgment in matters of significance

Second prong of the test

A recent decision by the U.S. Court of Appeals for the First District clarified the method of application of the second prong to the exemption. The Department of Labor (DOL) appealed a decision by a district court that held two groups of employees had primary duties “directly related” to the general business operations of the employer.

Each group spent approximately 60% of their time “monitoring” and “controlling” matters their employment at a subsidiary of a public utility holding company.

The DOL argued that the district court improperly evaluated the test’s second prong. The court applied a form of analysis recommended by the DOL. Ultimately, the court demonstrated that the primary duties of both groups directly relate to the management of or business operations of neither the employer or its customers.

The groups’ duties directly relate to the management or general operations of the company by providing the very services – operating electric grids and pipelines – the company provides. Second, their duties do not include designing, analyzing or improving the customers’ systems beyond day-to-day monitoring. The appeals court returned the case to the district court.

Experience matters

On many occasions, employment compensation appears straightforward and strictly mathematical. Legal issues, such as employee classification, contribute significantly to which employees have eligibility for monetary benefits.