Salaried Employee Misclassification

By default, employees covered by federal and state wage and hour laws must be paid overtime compensation when they work more than 40 hours in a workweek. However, there are many exceptions to this general rule.

Most common exemptions are the so-called “White-Collar” exemptions: Executive, Administrative, Professional and Outside Sales. It is important to keep in mind that it is the employer’s burden to prove that its employees meet all of the criteria of a specific exemption. Otherwise, the employee has been misclassified and may be owed overtime.

Salary Basis Requirement

With the exception of the Outside Sales exemption (which does not require payment of a salary), each of the White-Collar exemptions require that the employee receive a salary of at least $684 per week (under federal law and even higher in some states). A “salary” means that the employer is required to pay the employee a particular amount, regardless of whether sufficient work is available to the employee every week. For example, an employer cannot rely on the Administrative exemption to deny overtime pay to an employee in a busy week, and then give the employee two days off and pay them less in a slow week.

Outside Sales Exemption

Primary Duty Test

In addition to the salary requirement, the employer must demonstrate that the employee’s “primary duty” meets a number of criteria to rely on the overtime exemption.

Executive Exemption

The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

The employee must have the 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.

Administrative Exemption

The employee’s primary duty must be 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

The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional Exemptions

There are two types of exempt professionals: Learned Professionals and Creative Professionals.

Learned Professionals

The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;

The advanced knowledge must be in a field of science or learning; and

The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Creative Professional

The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

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