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To be or not to be exempt? A review of the Administrative Exemption

August 8, 2016

Author: Kym Hess, HR Business Partner, HR Collaborative, LLC

Rules, rules and more rules! The FLSA changes are going into effect in a few short months. Many employers may be struggling with this. You may be thinking, “We already compensate our employees fairly and consistently for their hard work!” That’s good news. If your intention is to pay employees fairly for all of the work they perform, then using the new guidelines will provide structure and a method of which to do so and it should integrate into your compensation philosophy. Keep in mind: the regulations and thresholds have not been updated since 2004 so for some it may be way overdue.

Last week we shared that the changes are not just about the numbers. Exempt workers must also meet a duties test. The duties test has been in effect for years, but many employers have not paid particular attention to it until now. There are six main exemption categories within the regulation and we will explore all of them over the next several weeks. Today, we’ll focus on the Administrative Exemption to determine who in your organization qualifies as exempt from overtime pay.

Who falls into the “Administrative” category? They are positions being described as Coordinator, Administrator, Analyst and even Accountant. Remember, according to the Wage and Hour Division of the DOL “Job titles do not determine exempt status,” so we can’t stop there. 

First review the employee’s compensation and if that is at or above the new threshold of $47,464 annually, or $913 weekly, then move on to the final steps of reviewing the duties. There is a two-part inquiry for determining whether an employee performs exempt administrative duties. You need to analyze the impact and significance of the duties of the position to the organization.

Part I
Are the primary duties non-manual work and directly related to management or general business operations of the company or its customers?

  • Who will likely qualify: Decision makers whose daily initiatives drive business outcomes. Individuals who, because of their expertise, are expected to recommend and implement processes on behalf of the organization on a frequent basis.
  • Who won’t qualify: Employees that simply follow set processes or procedures, such as an employee that is responsible for accounts receivable and handles cash flow daily. 

Part II
What is the level or nature of the work performed? Does the employee’s primary duty include the exercise of discretion and independent judgment with respect to matters of significance? All of the relevant factors must be considered when determining whether an employee in an administrative position is exempt. The following examples may help identify exemption qualifications.

The employee has authority to commit the organization to initiatives, projects or purchases that have significant financial impact. 

  • Who will likely qualify: The company Controller responsible for establishing and approving company-wide budget. Department heads push their budget for approval and the Controller must decide to accept or deny the request and make recommendations for change. This individual has “signing rights” and is allowed to make and approve financial purchases, possibly within limits, on behalf of the company.
  • Who won’t qualify: An Auditor, who reviews financial documents, identifies problem areas and makes recommendations for change.

The employee negotiates authority for organization on noteworthy decisions that impact heavily.

  • Who will likely qualify: Marketing Director who designs and implements the company brand worldwide and is responsible for sourcing and hiring vendors that will help complete the branding process.
  • Who won’t qualify: The Graphic Designer who determines on a daily basis what colors, font and layout to use in the company brand marketing worldwide.

The employee is involved in planning long and short-term strategic objectives.

  • Who will likely qualify: Employee who meets regularly with other leaders to identify the organization’s strategic plan and objectives and is responsible for implementation of such plans whether long or short term.
  • Who won’t qualify: An individual who is responsible for planning and implementing an annual company wide event that celebrates the profits of the company and includes their customers.

An employee must meet all duties requirements to qualify as exempt; meeting only a portion of them will not comply. For a full list of details access the DOL website here.

Stay tuned as we dig in to the other exemptions and explore ‘to be or not to be exempt’ next week. 
HR Collaborative is a business consulting firm specializing in strategic human resource management.  We operate in partnership with our clients and as an extension of their HR department. We help organizations build their HR systems, offering assistance within the broad spectrum of Human Capital Management. Contact: 616.965.7860 or www.hrcollaborative.net.

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