AN OVERVIEW OF
THE FAIR LABOR STANDARDS ACT’S
WHITE COLLAR EXEMPTIONS
By
Raymond L. Hogge, Jr., Esq.
PAYNE, GATES, FARTHING &
RADD, P.C.
Attorneys and Counsellors at
Law
1515 Dominion Tower
999 Waterside Drive
Norfolk, Virginia 23510-3309
Telephone: (757) 640-1500
Fax: (757) 627-6583
E-Mail:
RHogge@PayneGates.com
This publication can be
accessed online at
www.VirginiaLaborLaw.com
Copyright 2001 Raymond L.
Hogge, Jr.
All rights reserved.
This publication is intended
solely for educational purposes,
and does not constitute
legal advice.
INTRODUCTION
Section 13(a)(1) of the Fair Labor Standards Act
(“FLSA”) exempts from the wage and hour provisions of the FLSA “any employee
employed in a bona fide executive, administrative, or professional capacity
(including any employee employed in the capacity of academic administrative
personnel or teacher in elementary or secondary schools), or in the capacity of
outside salesman (as such terms are defined and delimited from time to time by
regulations of the Secretary, subject to the provisions of the Administrative
Procedure Act, except that an employee of a retail or service establishment
shall not be excluded from the definition of employee employed in a bona fide
executive or administrative capacity because of the number of hours in his
workweek which he devotes to activities not directly or closely related to the
performance of executive or administrative activities, if less than 40 percent
of his hours worked in the workweek are devoted to such activities).” See 29
C.F.R. 541.99.
OVERTIME EXEMPTION FOR EXECUTIVES
Employed in a
Bona Fide Executive Capacity
An employee is employed in a bona fide executive capacity
if he meets “the long test” or “the short test.” See 29 C.F.R. section 541.1.
To meet “the long test,” the employee must be one:
(a) whose primary duty consists of the management
of the enterprise in which he is employed or of a customarily recognized department of subdivision thereof; and
(b) who customarily and regularly directs the work of two or more other
employees therein; and
(c) who has the authority to hire or fire other employees or whose
suggestions and recommendations as to the hiring or firing and as to the
advancement and promotion or any other change of status of other employees will
be given particular weight; and
(d) who customarily and regularly exercises discretionary powers; and
(e) who does not devote more than 20 percent,
or, in the case of an employee of a retail or service establishment who does
not devote as much as 40 percent, of his hours of work in the workweek to
activities which are not directly and
closely related to the performance of the work described in paragraphs (a)
through (d) (however, this requirement does not apply in the case of an
employee who is in sole charge of an independent establishment or a physically
separated branch establishment, or who owns at least a 20‑percent
interest in the enterprise in which he is employed); and
(f) who is compensated for his services on a
salary basis at a rate of not less than $155 per week (or $130 per week, if
employed by other than the Federal Government in Puerto Rico, the Virgin
Islands, or American Samoa), exclusive of board, lodging, or other facilities.
To meet “the short test,” the employee must be one:
(a) whose primary duty consists of the
management of the enterprise in which the employee is employed or of a
customarily recognized department or subdivision thereof; and
(b) whose primary duty includes the customary
and regular direction of the work of two or more other employees therein; and
(c) is compensated on a salary basis at a
rate of not less than $250 per week (or $200 per week, if employed by other
than the Federal Government in Puerto Rico, the Virgin Islands or American
Samoa), exclusive of board, lodging, or other facilities.
Primary Duty
The amount of time spent in the performance of the
managerial duties is a useful guide in determining whether management is the
primary duty of an employee. In most cases, a good rule of thumb is that
primary duty means the major part, or over 50 percent, of the employee’s time.
Thus, an employee who spends over 50 percent of his time in management would
have management as his primary duty.
Time alone, however, is not the sole test, and in
situations where the employee does not spend over 50 percent of his time in
managerial duties, he might nevertheless have management as his primary duty if
the other pertinent factors support such a conclusion. Some of these pertinent
factors are the relative importance of the managerial duties as compared with
other types of duties, the frequency with which the employee exercises
discretionary powers, his relative freedom from supervision, and the
relationship between his salary and the wages paid other employees for the kind
of nonexempt work performed by the supervisor. For example, in some
departments, or subdivisions of an establishment, an employee has broad
responsibilities similar to those of the owner or manager of the establishment,
but generally spends more than 50 percent of his time in production or sales
work. While engaged in such work he supervises other employees, directs the
work of warehouse and delivery men, approves advertising, orders merchandise,
handles customer complaints, authorizes payment of bills, or performs other
management duties as the day‑to‑day operations require. He may be
considered to have management as his primary duty. In the data processing field
an employee who directs the day‑to‑day activities of a single group
of programmers and who performs the more complex or responsible jobs in
programming may be considered to have management as his primary duty. See 29
C.F.R. Section 541.103.
Management
According to the U.S. Department of Labor, work such as
the following is exempt work when it is performed by an employee in the
management of his department or the supervision of the employees under him:
Interviewing, selecting, and training of employees; setting and adjusting their
rates of pay and hours of work; directing their work; maintaining their
production or sales records for use in supervision or control; appraising their
productivity and efficiency for the purpose of recommending promotions or other
changes in their status; handling their complaints and grievances and
disciplining them when necessary; planning the work; determining the techniques
to be used; apportioning the work among the workers; determining the type of
materials, supplies, machinery or tools to be used or merchandise to be bought,
stocked and sold; controlling the flow and distribution of materials or
merchandise and supplies; providing for the safety of the men and the property.
See 29 C.F.R. Section 541.102.
Customarily Recognized
Department or Subdivision
The phrase “a customarily recognized department or
subdivision” is intended to distinguish between a mere collection of men
assigned from time to time to a specific job or series of jobs and a unit with
permanent status and function. In order properly to classify an individual as
an executive he must be more than merely a supervisor of two or more employees;
nor is it sufficient that he merely participates in the management of the unit.
He must be in charge of and have as his primary duty the management of a
recognized unit which has a continuing function.
Where an enterprise comprises more than one
establishment, the employee in charge of each establishment may be considered
in charge of a subdivision of the enterprise. Questions arise, however, in
cases involving supervisors who work outside the employer’s establishment, move
from place to place, or have different subordinates at different times. In such
instances, in determining whether the employee is in charge of a recognized
unit with a continuing function, it is the DOL’s position that the unit
supervised need not be physically within the employer’s establishment and may
move from place to place, and that continuity of the same subordinate personnel
is not absolutely essential to the existence of a recognized unit with a
continuing function, although in the ordinary case a fixed location and
continuity of personnel are both helpful in establishing the existence of such
a unit. For example, the projects on which an individual in charge of a certain
type of construction work is employed may occur at different locations, and he
may even hire most of his workforce at these locations; the mere fact that he
moves his location would not invalidate his exemption if there are other
factors which show that he is actually in charge of a recognized unit with a
continuing function in the organization.
An otherwise exempt employee usually will not lose the
exemption merely because he draws the men under his supervision from a pool, if
other factors are present which indicate that he is in charge of a recognized
unit with a continuing function. For instance, if this employee is in charge of
the unit which has the continuing responsibility for making all installations
for his employer, or all installations in a particular city or a designated
portion of a city, he would be in charge of a department or subdivision despite
the fact that he draws his subordinates from a pool of available men. It is
less likely, however, that a supervisor drawn from a pool of supervisors who
supervises employees assigned to him from a pool and who is assigned a job or
series of jobs from day to day or week to week has the status of an executive,
since such an employee may not be in charge of a recognized unit with a
continuing function. See 29 C.F.R. Section 541.104.
Customarily and
Regularly Supervises at Least Two Employees
An employee will qualify as an “executive” only if he
customarily and regularly supervises at least two full‑time employees or
the equivalent. For example, if the “executive” supervises one full‑time
and two part‑time employees of whom one works morning and one,
afternoons; or four part‑time employees, two of whom work mornings and
two afternoons, this requirement would be met.
The employees supervised must be employed in the
department which the “executive” is managing. Often, a supervisor of a few as
two employees performs nonexempt work in excess of the general 20‑percent
tolerance. In a large machine shop there may be a machine‑shop supervisor
and two assistant machine‑shop supervisors. Assuming that they meet all
the other qualifications (and particularly assuming that they are not “working
foremen” (discussed below) they may qualify for the exemption.
A small department in a plant or in an office is usually
supervised by one person. Any attempt to classify one of the other workers in
the department as an executive merely by giving him an honorific title such as
assistant supervisor will almost inevitably fail as there will not be
sufficient true supervisory or other managerial work to keep two persons
occupied.
In a large department, such as a large shoe department in
a retail store which has separate sections for men’s, women’s, and children’s
shoes, for example, the supervision can be distributed among two or three
employees, conceivably among more. In such instances, assuming that the other
tests are met, especially the one concerning the performance of nonexempt work,
each such employee “customarily and regularly directs the work of two or more
other employees therein.”
An employee who merely assists the manager or buyer of a
particular department and supervises two or more employees only in the actual
manager’s or buyer’s absence, probably would not meet this requirement. For
example, where a single unsegregated department, such as a women’s sportswear
department or a men’s shirt department in a retail store, is managed by a
buyer, with the assistance of one or more assistant buyers, only one employee,
the buyer, can be considered an executive, even though the assistant buyers at
times exercise some managerial and supervisory responsibilities.
A shared responsibility for the supervision of the same
two or more employees in the same department does not satisfy the requirement
that the employee “customarily and regularly directs the work of two or more
employees therein.” See 29 C.F.R. Section 541.105.
Hiring and Firing
The FLSA regulations require that an exempt executive
employee have the authority to hire or fire other employees or that his
suggestions and recommendations as to hiring or firing and as to advancement
and promotion or any other change of status of the employees who he supervises
will be given particular weight. Thus, no employee, whether high or low in the
hierarchy of management, can be considered as employed in a bona fide executive
capacity unless he is directly concerned either with the hiring or the firing
and other change of status of the employees under his supervision, whether by
direct action or by recommendation to those to who the hiring and firing
functions are delegated. See 29 C.F.R. Section 541.106.
Discretionary Powers
The DOL requires that an exempt executive employee
customarily and regularly exercise discretionary powers. The phrase
“customarily and regularly” signifies a frequency which must be greater than
occasional but which may be less than constant. The requirement will be met by
the employee who normally and recurrently is called upon to exercise and does
exercise discretionary powers in the day‑to‑day performance of his
duties. The requirement is not met by the occasional exercise of discretionary
powers. A person whose work is so completely routinized that he has no
discretion does not qualify for the exemption. See 29 C.F.R. Section 541.107.
Directly and Closely
Related
The phrase “directly and closely related” brings within
the category of exempt work not only the actual management of the department
and the supervision of the employees therein, but also activities which are
closely associated with the performance of the duties involved in such
managerial and supervisory functions or responsibilities. The supervision of
employees and the management of a department include a great many directly and
closely related tasks which are different from the work performed by
subordinates and are commonly performed by supervisors because they are helpful
in supervising the employees or contribute to the smooth functioning of the
department for which they are responsible. Frequently such exempt work is of a
kind which in establishments that are organized differently or which are larger
and have greater specialization of function, may be performed by a nonexempt
employee hired especially for that purpose.
Keeping basic records of working time, for example, is
frequently performed by a timekeeper employed for that purpose. In such cases
the work is not exempt in nature. In other establishments which are not large
enough to employ a timekeeper, or in which the timekeeping function has been
decentralized, the supervisor of each department keeps the basic time records
of his own subordinates. In these instances, the timekeeping is directly
related to the function of managing the particular department and supervising
its employees. However, the preparation of a payroll by a supervisor, even the
payroll of the employees under his supervision, cannot be considered to be
exempt work, since the preparation of a payroll does not aid in the supervision
of the employees or the management of the department. Similarly, the keeping by
a supervisor of production or sales records of his own subordinates for use in
supervision or control would be exempt work, while the maintenance of
production records of employees not under his direction would not be exempt
work.
Another example of work which may be directly and closely
related to the performance of management duties is the distribution of
materials or merchandise and supplies. Maintaining control of the flow of
materials or merchandise and supplies in a department is ordinarily a
responsibility of the managerial employee in charge. In many nonmercantile
establishments the actual distribution of materials is performed by nonexempt
employees under the supervisor’s direction. In other establishments it is not
uncommon to leave the actual distribution of materials and supplies in the
hands of the supervisor. In such cases it is exempt work since it is directly
and closely related to the managerial responsibility of maintaining the flow of
materials. In a large retail establishment, however, where the replenishing of
stocks of merchandise on the sales floor is customarily assigned to a nonexempt
employee, the performance of such work by the manager or buyer of the
department is nonexempt. The amount of time the manager or buyer spends in such
work must be offset against the statutory tolerance for nonexempt work. The
supervision and control of a flow of merchandise to the sales floor, of course,
is directly and closely related to the managerial responsibility of the manager
or buyer.
Setup work is another illustration of work which may be
exempt under certain circumstances if performed by a supervisor. The nature of
setup work differs in various industries and for different operations. Some
setup work is typically performed by the same employees who perform the
“production” work; that is, the employee who operates the machine also “sets it
up” or adjusts it for the particular job at hand. Such setup work is part of
the production operation and is not exempt. In other instances the setting up
of the work is a highly skilled operation which the ordinary production worker
or machine tender typically does not perform. In some plants, particularly
large ones, such setup work may be performed by employees whose duties are not
supervisory in nature. In other plants, however, particularly small plants,
such work is a regular duty of the executive and is directly and closely
related to his responsibility for the work performance of his subordinates and
for the adequacy of the final product. Under such circumstances it is exempt
work. In the data processing field the work of a supervisor when he performs
the more complex or more responsible work in a program utilizing several
computer programmers or computer operators would be exempt activity. Similarly,
a supervisor who spot checks and examines the work of his subordinates to
determine whether they are performing their duties properly, and whether the
product is satisfactory, is performing work which is directly and closely
related to his managerial and supervisory functions. However, this kind of
examining and checking must be distinguished from the kind which is normally
performed by an “examiner,” “checker,” or “inspector,” and which is really a
production operation rather than a part of the supervisory function. Likewise,
a department manager or buyer in a retail or service establishment who goes
about the sales floor observing the work of sales personnel under his
supervision to determine the effectiveness of their sales techniques, checking
on the quality of customer service being given, or observing customer
preferences and reactions to the lines, styles, types, colors, and quality of
the merchandise offered, is performing work which is directly and closely
related to his managerial and supervisory functions. His actual participation,
except for supervisory training or demonstration purposes, in such activities
as making sales to customers, replenishing stocks of merchandise on the sales
floor, removing merchandise from fitting rooms and returning to stock or
shelves, however, is not. The amount of time a manager or buyer spends in the
performance of such activities must be included in computing the percentage
limitation on nonexempt work.
Watching machines is another duty which may be exempt
when performed by a supervisor under proper circumstances. Obviously the mere
watching of machines in operation cannot be considered exempt work where, as in
certain industries in which the machinery is largely automatic, it is an
ordinary production function. Thus, an employee who watches machines for the
purpose of seeing that they operate properly or for the purpose of making
repairs or adjustments is performing nonexempt work. On the other hand, a
supervisor who watches the operation of the machinery in his department in the
sense that he “keeps an eye out for trouble” is performing work which is
directly and closely related to his managerial responsibilities. Making an
occasional adjustment in the machinery under such circumstances is also exempt
work.
A word of caution is necessary in connection with these
illustrations. The recordkeeping, material distributing, setup work, machine
watching and adjusting, and inspecting, examining, observing and checking
referred to in the examples of exempt work are presumably the kind which are
supervisory and managerial functions rather than merely “production” work.
Frequently it is difficult to distinguish the managerial type from the type
which is a production operation. If work of this kind takes up a large part of
the employee’s time it would be evidence that management of the department is
not the primary duty of the employee, that such work is a production operation
rather than a function directly and closely related to the supervisory or
managerial duties, and that the employee is in reality a combination foreman‑
“setup” man, foreman‑machine adjuster (or mechanic), or foreman‑examiner,
floorman‑salesperson, etc., rather than a bona fide executive.
See 29 C.F.R. Section
541.108.
Emergencies
Under certain occasional emergency conditions, work which
is normally performed by nonexempt employees and is nonexempt in nature will be
directly and closely related to the performance of the exempt functions of
management and supervision and will therefore be exempt work. In effect, this
means that a bona fide executive who performs work of a normally nonexempt
nature on rare occasions because of the existence of a real emergency will not,
because of the performance of such emergency work, lose the exemption. Bona
fide executives include among their responsibilities the safety of the
employees under their supervision, the preservation and protection of the
merchandise, machinery or other property of the department or subdivision in
their charge from damage due to unforeseen circumstances, and the prevention of
widespread breakdown in production, sales, or service operations. Consequently,
when conditions beyond control arise which threaten the safety of the
employees, or a cessation of operations, or serious damage to the employer’s
property, any manual or other normally nonexempt work performed in an effort to
prevent such results is considered exempt work and is not included in computing
the percentage limitation on nonexempt work. This rule, however, does not apply
to nonexempt work arising out of occurrences which are not beyond control or
for which the employer can reasonably provide in the normal course of business.
DOL Example: A mine superintendent who pitches in after
an explosion and digs out the men who are trapped in the mine is still a bona
fide executive during that week.
DOL Example: The manager of a cleaning establishment who
personally performs the cleaning operations on expensive garments because he
fears damage to the fabrics if he allows his subordinates to handle them is not
performing “emergency” work of the kind which can be considered exempt.
DOL Example: The manager of a department in a retail
store is not performing exempt work when he personally waits on a special or
impatient customer because he fears the loss of the sale or the customer’s
goodwill if he allows a salesperson to serve him.
The performance of nonexempt work by executives during
inventory‑ taking, during other periods of heavy workload, or the
handling of rush orders are the kinds of activities which the percentage tolerances
are intended to cover. For example, pitching in on the production line in a
canning plant during seasonal operations is not exempt “emergency” work even if
the objective is to keep the food from spoiling. For example, pitching in
behind the sales counter in a retail store during special sales or during
Christmas or Easter or other peak sales periods is not “emergency” work, even
if the objective is to improve customer service and the store’s sales record.
Maintenance work is not emergency work even if performed
at night or during weekends.
Relieving subordinates during rest or vacation periods
cannot be considered in the nature of “emergency” work since the need for
replacements can be anticipated.
Whether replacing the subordinate at the workbench, or
production line, or sales counter during the first day or partial day of an
illness would be considered exempt emergency work would depend upon the
circumstances in the particular case. Such factors as the size of the
establishment and of the executive’s department, the nature of the industry,
the consequences that would flow from the failure to replace the ailing
employee immediately, and the feasibility of filling the employee’s place
promptly would all have to be weighed.
All the regular cleaning up around machinery, even when
necessary to prevent fire or explosion, is not “emergency” work. However, the
removal by an executive of dirt or obstructions constituting a hazard to life
or property need not be included in computing the percentage limitation if it
is not reasonably practicable for anyone but the supervisor to perform the work
and it is the kind of “emergency” which has not been recurring.
The occasional performance of repair work in case of a
breakdown of machinery, or the collapse of a display rack, or damage to or
exceptional disarray of merchandise caused by accident or a customer’s
carelessness may be considered exempt work if the breakdown is one which the
employer cannot reasonably anticipate. However, recurring breakdowns or disarrays
requiring frequent attention, such as that of an old belt or machine which
breaks down repeatedly or merchandise displays constantly requiring re‑sorting
or straightening, are the kind for which provision could reasonably be made and
repair of which must be considered as nonexempt. See 29 C.F.R. Section 541.109.
Occasional Tasks
In addition to the type of work which by its very nature
is readily identifiable as being directly and closely related to the
performance of the supervisory and management duties, there is another type of
work which may be considered directly and closely related to the performance of
these duties. In many establishments the proper management of a department
requires the performance of a variety of occasional, infrequently recurring
tasks which cannot practicably be performed by the production workers and are
usually performed by the executive. These small tasks when viewed separately
without regard to their relationship to the executive’s overall functions might
appear to constitute nonexempt work. In reality they are the means of properly
carrying out the employee’s management functions and responsibilities in
connection with men, materials, and production. The particular tasks are not
specifically assigned to the “executive” but are performed by him in his
discretion.
It might be possible for the executive to take one of his
subordinates away from his usual tasks, instruct and direct him in the work to
be done, and wait for him to finish it. It would certainly not be practicable,
however, to manage a department in this fashion. With respect to such
occasional and relatively inconsequential tasks, it is the practice in industry
generally for the executive to perform them rather than to delegate them to
other persons. When any one of these tasks is done frequently, however, it
takes on the character of a regular production function which could be
performed by a nonexempt employee and must be counted as nonexempt work. In
determining whether such work is directly and closely related to the
performance of the management duties, consideration should be given to whether
it is (1) the same as the work performed by any of the subordinates of the
executive, or (2) a specifically assigned task of the executive employees, or
(3) practicably delegable to nonexempt employees in the establishment, or (4)
repetitive and frequently recurring. See 29 C.F.R. Section 541.110.
Percentage Limitations
on Nonexempt Work
An employee will not qualify for exemption as an
executive if he devotes more than 20 percent (or in the case of an employee of
a retail or service establishment if he devotes as much as 40 percent) of his
hours worked in the workweek to nonexempt work. This test is applied on a
workweek basis, and the percentage of time spent on nonexempt work is computed
on the time worked by the employee.
The maximum allowance of 20 percent for nonexempt work
applies unless the establishment by which the employee is employed qualifies
for the higher allowance as a retail or service establishment within the
meaning of the FLSA. Such an establishment must be a distinct physical place of
business, open to the general public, which is engaged on the premises in
making sales of goods or services to which the concept of retail selling or
servicing applies. Such an establishment must make at least 75 percent of its
annual dollar volume of sales of goods or services from sales that are both not
for resale and recognized as retail in the particular industry. Types of
establishments which may meet these tests include (but are not limited to)
stores selling consumer goods to the public, hotels, motels, restaurants, some
types of amusement or recreational establishments (but not those offering
wagering or gambling facilities), hospitals, institutions primarily engaged in
the care of the sick, the aged, the mentally ill residing on the premises (if
the premises open to the general public), public parking lots and parking
garages, auto repair shops, gasoline service stations (but not truck stops),
funeral homes, and cemeteries. Public and private elementary and secondary
schools and institutions of higher education are, as a rule, not retail or
service establishments, because they are not engaged in sales of goods or
services to which the retail concept applies.
There are two special exceptions to the percentage
limitations: (1) the exception relating to the employee in ``sole charge’’ of
an independent or branch establishment, and (2) the exception relating to an
employee owning a 20‑percent interest in the enterprise in which he is
employed. These except the employee only from the percentage limitations on
nonexempt work, but do not except the employee from any of the other
requirements. Thus, while the percentage limitations on nonexempt work are not
applicable, it is clear that an employee would not qualify for the exemption if
he performs so much nonexempt work that he could no longer meet the requirement
that his primary duty must consist of the management of the enterprise in which
he is employed or of a customarily recognized department or subdivision
thereof. See 29 C.F.R. Section 541.112.
Sole Charge Exception to Percentage
Limitation
An exception from the percentage limitations on nonexempt
work is provided for “an employee who is in sole charge of an independent
establishment or a physically separated branch establishment”. Such an employee
is considered to be employed in a bona fide executive capacity even though he
exceeds the applicable percentage limitation on nonexempt work.
To be an “independent establishment,” the establishment
must have a fixed location and must be geographically separated from other
company property. The management of operations within one among several
buildings located on a single or adjoining tracts of company property does not
qualify for the exemption. In the case of a branch, there must be a true and
complete physical separation from the main office.
A determination as to the status as “an independent
establishment or a physically separated branch establishment” of any part of
the business operations on the premises of a retail or other establishment,
must be made on the basis of the physical and economic facts in the particular
situation. A leased department cannot be considered to be a separate
establishment where, for example, it and the retail store in which it is
located operate under a common trade name and the store may determine, or have
the power to determine, the leased department’s space location, the type of
merchandise it will sell its pricing policy, its hours of operation and some or
all of its hiring, firing, and other personnel policies, and matters such as
advertising, adjustment, and credit operations, insurance and taxes, are
handled on a unified basis by the store. A leased department may qualify as a
separate establishment, however, where, among other things, the facts show that
the lessee maintains a separate entrance and operates under a separate name,
with its own separate employees and records, and in other respects conducts his
business independently of the lessor’s. In such a case the leased department
would enjoy the same status as a physically separated branch store.
Since the employee must be in sole charge, only one
person in any establishment can qualify as an executive under this exception,
and then only if he is the top person in charge at that location. (It is
possible for other persons in the same establishment to qualify for exemption
as executive employees, but not under the exception from the nonexempt work
limitation.) Thus, it would not be applicable to an employee who is in charge
of a branch establishment but whose superior makes his office on the premises.
An example is a district manager who has overall supervisory functions in
relation to a number of branch offices, but makes his office at one of the
branches. The branch manager at the branch where the district manager’s office
is located is not in sole charge of the establishment and does not come within
the exception. This does not mean that the sole‑charge status of an employee
will be considered lost because of an occasional visit to the branch office of
the superior of the person in charge, or, in the case of an independent
establishment by the visit for a short period on one or two days a week of the
proprietor or principal corporate officer of the establishment. In these
situations the sole‑charge status of the employee in question will appear
from the facts as to his functions, particularly in the intervals between
visits. If, during these intervals, the decisions normally made by an executive
in charge of a branch or an independent establishment are reserved for the
superior, the employee is not in sole charge. If such decisions are not
reserved for the superior, the sole‑charge status will not be lost merely
because of the superior’s visits.
In order to qualify for the exception the employee must
ordinarily be in charge of all the company activities at the location where he
is employed. If he is in charge of only a portion of the company’s activities
at his location, then he cannot be said to be in sole charge of an independent
establishment or a physically separated branch establishment. In exceptional
cases the DOL has found that an executive employee may be in sole charge of all
activities at a branch office except that one independent function which is not
integrated with those managed by the executive is also performed at the branch.
This one function is not important to the activities managed by the executive
and constitutes only an insignificant portion of the employer’s activities at
that branch. A typical example of this type of situation is one in which desk
space in a warehouse otherwise devoted to the storage and shipment of parts is
assigned a salesman who reports to the sales manager or other company official
located at the home office. Normally only one employee (at most two or three,
but in any event an insignificant number when compared with the total number of
persons employed at the branch) is engaged in the nonintegrated function for
which the executive whose sole‑charge status is in question is not
responsible. Under such circumstances the employee does not lose his sole‑charge
status merely because of the desk‑space assignment. See 29 C.F.R. Section
541.113.
20‑Percent Ownership Interest
Exception to Percentage Limitation
An exception from the percentage limitations on nonexempt
work is provided for an employee who owns at least a 20‑percent interest
in the enterprise in which he is employed. This provision recognizes the
special status of a shareholder of an enterprise who is actively engaged in its
management. The exception is available to an employee owning a bona fide 20‑percent
equity in the enterprise in which he is employed, regardless of whether the
business is a corporate or other type of organization. See 29 C.F.R. Section
541.114.
Working Foremen
The primary purpose of the exclusionary language placing
a limitation on the amount of nonexempt work is to distinguish between the bona
fide executive and the “working” foreman or “working” supervisor who regularly
performs “production” work or other work which is unrelated or only remotely
related to his supervisory activities.
One type of working foreman or working supervisor most
commonly found in industry works alongside his subordinates. Such employees,
sometimes known as “strawbosses,” “gang leaders,” or “group leaders” perform
the same kind of work as that performed by their subordinates, and also carry
on supervisory functions. The work of the same nature as that performed by the
employees’ subordinates must be counted as nonexempt work and if the amount of
such work performed is substantial the exemption does not apply.
(“Substantial’’ means more than 20 percent ‑‑ see the 20‑percent
limitation on nonexempt work.) A foreman in a dress shop, for example, who
operates a sewing machine to produce the product is performing nonexempt work.
However, this should not be confused with the operation of a sewing machine by
a foreman to instruct his subordinates in the making of a new product, such as
a garment, before it goes into production.
Another type of working foreman or working supervisor who
cannot be classed as a bona fide executive is one who spends a substantial
amount of time in work which, although not performed by his own subordinates,
consists of ordinary production work or other routine, recurrent, repetitive
tasks which are a regular part of his duties. Such an employee is in effect
holding a dual job. He may be, for example, a combination foreman‑production
worker, supervisor‑clerk, or foreman combined with some other skilled or
unskilled occupation. His non‑supervisory duties in such instances are
unrelated to anything he must do to supervise the employees under him or to
manage the department. They are in many instances mere fill‑in tasks
performed because the job does not involve sufficient executive duties to
occupy an employee’s full time. In other instances the non‑supervisory,
non‑managerial duties may be the principal ones and the supervisory or
managerial duties are subordinate and are assigned to the particular employee
because it is more convenient to rest the responsibility for the first line of
supervision in the hands of the person who performs these other duties. Typical
of employees in dual jobs which may involve a substantial amount of nonexempt
work are foremen or supervisors who also perform one or more of the production
or operating functions, though no other employees in the plant perform such
work. An example of this kind of employee is the foreman in a millinery or
garment plant who is also the cutter, or the foreman in a garment factory who
operates a multiple‑needle machine not requiring a full‑time
operator, and foremen or supervisors who have as a regular part of their duties
the adjustment, repair, or maintenance of machinery or equipment. Other
examples in this category are the foreman‑fixer in the hosiery industry
who devotes a considerable amount of time to making adjustments and repairs to
the machines of his subordinates, or the planer‑mill foreman who is also
the “machine man” who repairs the machines and grinds the knives, foremen or
supervisors who perform clerical work other than the maintenance of the time
and production records of their subordinates, the foreman of the shipping room
who makes out the bills of lading and other shipping records, the warehouse
foreman who also acts as inventory clerk, the head shipper who also has charge
of a finished goods stock room, assisting in placing goods on shelves and
keeping perpetual inventory records, or the
office manager, head bookkeeper, or chief clerk who performs routine
bookkeeping. The head bookkeeper, for example, who spends a substantial
amount of his time keeping books of the same general nature as those kept by
the other bookkeepers, even though his books are confidential in nature or
cover different transactions from the books maintained by the under
bookkeepers, is not primarily an executive employee and should not be so
considered. See 29 C.F.R. Section 541.115.
Executive Trainees
The executive exemption is applicable to an employee
employed in a bona fide executive capacity and does not include employees
training to become executives and not actually performing the duties of an
executive. See 29 C.F.R. Section 541.116.
Amount of Salary
Required
Except as otherwise provided below, compensation on a
salary basis at a rate of not less than $155 per week, exclusive of board,
lodging, or other facilities, is required for exemption as an executive. The
$155 a week may be translated into equivalent amounts for periods longer than 1
week. The requirement will be met if the employee is compensated biweekly on a
salary basis of $310, semimonthly on a salary basis of $335.84 or monthly on a
salary basis of $671.67. However, the shortest period of payment which will
meet the requirement of payment ``on a salary basis’’ is a week.
In Puerto Rico, the Virgin Islands, and American Samoa,
the salary test for exemption as an executive is $130 per week for other than
an employee of the Federal Government.
The payment of the required salary must be exclusive of
board, lodging, or other facilities; that is, free and clear. On the other
hand, the DOL regulations do not prohibit the sale of such facilities to
executives on a cash basis if they are negotiated in the same manner as similar
transactions with other persons. See 29 C.F.R. Section 541.117.
Salary Basis
An employee will be considered to be paid “on a salary
basis” within the meaning of the regulations if under his employment agreement
he regularly receives each pay period on a weekly, or less frequent basis, a
predetermined amount constituting all or part of his compensation, which amount is not subject to reduction
because of variations in the quality or quantity of the work performed. Subject
to the exceptions provided below, the employee must receive his full salary for
any week in which he performs any work
without regard to the number of days or hours worked. This policy is also
subject to the general rule that an employee need not be paid for any workweek in which he performs no work.
An employee will not be considered to be on a salary
basis if deductions from his predetermined compensation are made for absences
occasioned by the employer or by the operating
requirements of the business. Accordingly, if the employee is ready,
willing, and able to work, deductions may not be made for time when work is not
available.
Deductions may be made when the employee absents himself
from work for a day or more for personal
reasons, other than sickness or accident.
Thus, if an employee is absent for a day or longer to handle personal affairs,
his salaried status will not be affected if deductions are made from his salary
for such absences.
Deductions may also be made for absences of a day or more
occasioned by sickness or disability
(including industrial accidents) if the deduction is made in accordance with a bona fide plan, policy or practice of
providing compensation for loss of salary occasioned by both sickness and
disability. Thus, if the employer’s particular plan, policy or practice
provides compensation for such absences, deductions for absences of a day or
longer because of sickness or disability may be made before an employee has
qualified under such plan, policy or practice, and after he has exhausted his
leave allowance thereunder. It is not required that the employee be paid any
portion of his salary for such days or days for which he receives compensation
for leave under such plan, policy or practice. Similarly, if the employer operates
under a State sickness and disability insurance law, or a private sickness and
disability insurance plan, deductions may be made for absences of a working day
or longer if benefits are provided in accordance with the particular law or
plan.
In the case of an industrial
accident, the salary basis requirement will be met if the employee is
compensated for loss of salary in accordance with the applicable workers’
compensation law or the plan adopted by the employer, provided the employer also has some plan, policy or practice of
providing compensation for sickness and disability other than that relating to
industrial accidents.
Deductions may not be made for absences of an employee
caused by jury duty, attendance as a
witness, or temporary military leave. The employer may, however, offset any
amounts received by an employee as jury or witness fees or military pay for a
particular week against the salary due for that particular week without loss of
the exemption.
Penalties imposed in good faith for
infractions of safety rules of major
significance will not affect the employee’s salaried status. Safety rules
of major significance include only those relating to the prevention of serious
danger to the plant, or other employees, such as rules prohibiting smoking in
explosive plants, oil refineries, and coal mines.
Payment of additional compensation besides the salary is
not inconsistent with the salary basis of payment. The requirement will be met,
for example, by a branch manager who receives a salary of $155 or more a week
and in addition, a commission of one
percent of the branch sales. The requirement will also be met by a branch
manager who receives a percentage of the sales or profits of the branch, if the
employment arrangement also includes a guarantee of at least the minimum weekly
salary (or the equivalent for a monthly or other period) required by the
regulations.
Another type of situation in which the requirement will
be met is that of an employee paid on a daily
or shift basis, if the employment arrangement includes a provision that the
employee will receive not less than the amount specified in the regulations in
any week in which the employee performs any work.
The test of payment on a salary basis will not be met,
however, if the salary is divided into two parts for the purpose of
circumventing the requirement of payment on a salary basis, e.g., a salary of
$200 in each week in which any work is performed and an additional $50 which is
made subject to deductions which are not permitted.
Failure to pay the full salary in the initial or terminal week of employment is not considered
inconsistent with the salary basis of payment. In such weeks the payment of a
proportionate part of the employee’s salary for the time actually worked will
meet the requirement. However, this should not be construed to mean that an
employee is on a salary basis within the meaning of the regulations if he is
employed occasionally for a few days and is paid a proportionate part of the
weekly salary when so employed. Moreover, even payment of the full weekly
salary under such circumstances would not meet the requirement, since casual or occasional employment for a
few days at a time is inconsistent with employment on a salary basis within the
meaning of the regulations.
The DOL takes the position that the effect of making a deduction which is not permitted under these
interpretations will depend upon the facts in the particular case. Where
deductions are generally made when there is no work available, it indicates that
there was no intention to pay the employee on a salary basis. In such a case
the exemption would not be applicable to him during the entire period when such
deductions were being made. On the other hand, where a deduction not permitted
by these interpretations is inadvertent, or is made for reasons other than lack
of work, the exemption will not be considered to have been lost if the employer
reimburses the employee for such deductions and promises to comply in the
future. See 29 C.F.R. Section 541.118.
High Salaried
Executives
The “short test” applies to managerial employees who are
compensated on a salary basis at a rate of not less than $250 per week
exclusive of board, lodging, or other facilities. Mechanics, carpenters,
linotype operators, or craftsmen of other kinds, however, are not exempt under
the proviso no matter how highly paid they might be. See 29 C.F.R. Section
541.119.
Employed in a Bona Fide Administrative Capacity
An employee is employed in a bona fide administrative
capacity if he meets “the long test” or “the short test.”
To meet “the long test,” the employee must be one:
(a) whose primary duty consists of either (1)
the performance of office or non-manual
work directly related to management
policies or general business operations of his employer or his employer’s
customers, or (2) the performance of functions in the administration of a
school system, or educational establishment or institution, or of a department
or subdivision thereof, in work directly related to the academic instruction or
training carried on therein; and
(b) who customarily and regularly exercises discretion and independent judgment;
and
(c)(1) who regularly and directly assists a
proprietor, or an employee employed in a bona fide executive or administrative
capacity (as such terms are defined in the regulations of this subpart), or (2)
who performs under only general supervision work along specialized or technical
lines requiring special training, experience, or knowledge, or (3) who executes
under only general supervision special assignments and tasks; and
(d) who does not devote more than 20 percent,
or, in the case of an employee of a retail or service establishment who does
not devote as much as 40 percent, of his hours worked in the workweek to
activities which are not directly and closely related to the performance of the
work described in paragraphs (a) through (c); and