One of the most misunderstood areas of employment law involves overtime pay and salaried employees. Under the Fair Labor Standards Act—one of the most significant acts of employment legislation in our nation’s history—employees who work more than forty (40) hours per week are entitled to overtime at a rate “not less than one and one-half times the regular rate at which he is employed.” 29 U.S.C. § 207(a)(1). The Fair Labor Standards Act was enacted in 1938 in response to “conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers…” 29 U.S.C. § 202(a). Its purpose was to “eliminate the conditions above referred…without substantially curtailing employment or earning power.” 29 U.S.C. § 202(b).
It has been 80 years since the Fair Labor Standards Act (“FLSA”) was passed by Congress. It has undergone numerous revisions, been the subject of thousands of lawsuits, and is one of the most identifiable pieces of legislation in our country. That notwithstanding, the FLSA continues to be widely misunderstood by employers and employees alike; in particular as it relates to salaried employees. By some estimates, more than 50% of employers get it wrong.
Employees often assume that if they are paid a salary then they are not entitled to the overtime pay required under the FLSA. However, being a salaried employee in-and-of itself is NOT sufficient to disqualify an employee from overtime pay. A salaried employee must satisfy two tests in order to be unentitled to overtime pay. The first of these is the ‘salary test[.]’ The second is the ‘duties test[.]’ An employee who satisfies both of these tests is referred to as “exempt[.]” An exempt employee is not entitled to overtime pay, while a non-exempt employee is.
The salary test is the simpler of the two tests and is less often the subject of a lawsuit. It includes an annual salary threshold and weekly salary basis. Under the salary test, a salaried employee must be paid a minimum annual salary of $23,660 (multiple federal lawsuits are currently pending which could increase this to $47,476). In addition to the annual threshold, an employee must be paid a weekly salary of at least $455 per week (referred as the “salary basis test”).
The duties test, on the other hand, is the source of constant confusion, mistake, and opportunism. The duties test, which must also be satisfied in order for an employee to be exempt (not entitled) to overtime pay, requires that an employee engage in certain duties, possess certain responsibilities, or work in certain fields in order to be exempt from overtime pay. These include, but are not limited to: (1) executive employees, (2) administrative employees, (3) learned professionals, (4) creative professionals, (5) agricultural employees, (6) computer employees, (7) outside sales employees, and (8) highly compensated employees.
Of these, one of the most common mistakes occurs when it comes to employees who are classified as exempt under the executive exemption. For purposes of the FLSA, the executive exemption applies to employees who (1) meet the salary test and (2) have as his/her primary duty the management of the enterprise or managing a customarily recognized department or subdivision of the enterprise. This typically requires managing or directing the work of two or more employees, possessing the ability to hire and fire (or, at minimum, make recommendations as o hiring, firing, promoting, or participating in other changes to employment). Unless and until an employer is able to establish both prongs of this test, an employee who is classified as “exempt” is done so incorrectly and is entitled to overtime.
An employee who brings a lawsuit for this kind of misclassification is entitled to overtime pay, a penalty referred to as “liquidated damages” which doubles that amount, and attorney’s fees and costs. Many employment attorneys are able to take on these types of cases on what’s referred to as a contingency fee, which means that an employee who brings a lawsuit does not have to pay the attorney but instead that the attorney will collect his/her fees at the conclusion of the lawsuit or upon settlement.
If you think you’ve been misclassified, it is important to contact an employment attorney right away. There is a statute of limitations that limits your ability to bring FLSA unpaid overtime claims to two years (sometimes three if you can prove the misclassification was willful).