We recently considered the plight of our hypothetical example, Elmer Employer, who had just learned that an employee's written waiver of the right to overtime pay cannot be enforced. Ellie Employee, a clerical worker, had assured Elmer that she did not expect to be compensated when she was doing "voluntary" catch-up work. She even signed a written waiver of any right to be paid for all hours over 40 that she worked in any given week. After she was terminated, she made a claim to the Kentucky Department of Labor for unpaid wages, and Elmer discovered that the waiver was worthless. Not only did he owe Ellie for unpaid wages, but he owed a penalty as well.
Unfortunately for Elmer, it appears that his wage and hour troubles may not be over. Let's look in on him again as he gets ready for a visit from Ivan Investigator, from the United States Department of Labor.
Ivan called Elmer to announce he wanted to visit with him about supervisory overtime pay. Elmer knows the visit must be about Sammy Super, his only supervisory employee. Sammy's primary job is directing the work of Elmer's six production employees. Sammy earns $30,000 per year and normally works between 50-60 hours per week. Elmer considers him to be exempt from overtime pay (that is, pay at one and one-half times his regular rate for all hours worked over 40 in a work week) because he's a supervisor.
Elmer is feeling confident. He has a booklet from the Kentucky Department of Labor listing categories of employees that are exempt from overtime pay: executive, administrative and professional employees, outside sales employees, outside collectors, certain highly compensated employees, and most importantly, individuals employed in a "bona fide supervisory capacity." His booklet explains that, if an employee has the primary duty of customarily and regularly directing the work of two or more other employees, and is paid at least $455 per week on a salary basis, he is exempt from overtime pay. Since Sammy's salary, on a weekly basis, is more than $455 per week, and since his primary duty is supervising six employees, Elmer looks forward to a brief visit from Ivan.
When Ivan arrives, Elmer tells him about Sammy's salary and supervisory duties. Expecting Ivan to thank him for his time and leave, Elmer is concerned when Ivan asks whether Sammy has the authority to hire or fire, or whether he makes recommendations as to hiring, firing, advancement, etc. Elmer becomes more concerned when Ivan asks how much time Sammy spends performing office or non-manual work. He truthfully tells Ivan that Sammy does not hire or fire, is never consulted about hiring or firing decisions, and spends almost all of his time in production out on the production floor. Elmer becomes genuinely troubled when Ivan tells him that he has probably misclassified Sammy, and that he may owe Sammy unpaid overtime for at least the past two years. Elmer wonders where he went wrong.
Analysis
Elmer did not realize that, although Kentucky and federal regulations governing exemptions from overtime pay are very similar, they are not identical. The federal regulations, unlike Kentucky's, do not include exemptions for "bona fide supervisory employees" or "outside collectors." If Elmer had been visited by a Kentucky investigator this time, as he was before, he could have relied on the supervisory exemption. However, since Ivan enforces federal law, not Kentucky law, Elmer is out of luck.
Ivan did try to help Elmer out by asking questions directed toward two possible exemptions that he thought Sammy might possibly have qualified for: the executive exemption and the administrative exemption. The executive exemption, among other things, requires that an employee have the authority to hire or fire, or that his suggestions and recommendations about hiring, firing, advancement, etc., be given particular weight. The administrative exemption requires, among other things, that an employee have as his primary duty the performance of office or non-manual work directly related to the management or general business operations of the employer or its customers. Sammy does not meet either of these requirements, so these exemptions cannot save Elmer.
Elmer would have been wise to have checked with legal counsel about the correct classification of employees for overtime purposes. As he learned today, classification mistakes can be costly.
Do you have a question about employment law issues? E-mail Wendy Becker at wlb@gdm.com and your question may be addressed (anonymously, of course) in a future issue.
Wendy Becker of Greenebaum Doll & McDonald PLLC advises and defends employers in all types of employment-related matters. This article is provided as general information rather than legal advice. Questions about individual situations should be directed to legal counsel.