Very Basic FLSA Information

This is an excerpt from a government website that covers the "Administrative" Exemption for classifying employees as exempt from overtime pay. Micromanagement to such an extent that employees hold the title of "manager" but are not, in fact, allowed to function as such can destroy the administrative exemption.

Information below is an excerpt from:

http://www.dol.gov/esa/whd/opinion/FLSA/2005/2005_12_16_54_FLSA.htm

As for the administrative exemption under 29 C.F.R. § 541.200(a), “[t]he term ‘employee employed in a bona fide administrative capacity’ shall mean any employee: (1) Compensated on a salary or fee basis at a rate of not less than $455 per week…; (2) Whose primary duty is 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 (3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.”

“The phrase ‘directly related to management or general business operations’ refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.” 29 C.F.R. § 541.201(a). “Work directly related to management or general business operations includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities.” 29 C.F.R. § 541.201(b). Additionally, “[a]n employee may qualify for the administrative exemption if the employee’s primary duty is the performance of work directly related to the management or general business operations of the employer’s customers. Thus, for example, employees acting as advisers or consultants to their employer’s clients or customers (as tax experts or financial consultants, for example) may be exempt.” 29 C.F.R. § 541.201(c).

“To qualify for the administrative exemption, an employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. The term ‘matters of significance’ refers to the level of importance or consequence of the work performed.” 29 C.F.R. § 541.202(a).

“The phrase ‘discretion and independent judgment’ must be applied in the light of all the facts involved in the particular employment situation in which the question arises. Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to:
1. whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices;
2. whether the employee carries out major assignments in conducting the operations of the business;
3. whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business;
4. whether the employee has authority to commit the employer in matters that have significant financial impact;
5. whether the employee has authority to waive or deviate from established policies and procedures without prior approval;
6. whether the employee has authority to negotiate and bind the company on significant matters;
7. whether the employee provides consultation or expert advice to management;
8. whether the employee is involved in planning long- or short-term business objectives;
9. whether the employee investigates and resolves matters of significance on behalf of management;
10. whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.” 29 C.F.R. § 541.202(b).

Federal courts generally find that employees who meet at least two or three of these factors mentioned above are exercising discretion and independent judgment, although a case-by-case analysis is required. See 69 Fed. Reg. at 22,143.

“The exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.” 29 C.F.R. § 541.202(e). As the court noted in Clark v. J.M. Benson, 789 F.2d 282, 287 (4th Cir. 1986), it is not sufficient that an employee makes decisions regarding “when and where to do different tasks, as well as the manner in which to perform them.” Nor is it sufficient that an employee may make limited decisions within clearly “prescribed parameters.” Dalheim v. KDFW-TV, 706 F.Supp. 493, 509 (N.D.Tex. 1988), aff’d, 918 F.2d 1220 (5th Cir. 1990) Rather, there must be true discretion and independent judgment exercised on matters of significance or consequence related to the management or general business operations of the employer or the employer’s customers.