Articles

Fairfield County Business Journal
February 25, 2016

Most companies have a girl or guy Friday (“Friday”) who does everything. While this employee is essential to your company, the question is do you pay him or her a salary or by the hour?  In most cases, the answer should be by the hour.  And if he/she works over 40 hours a week, a mistake can really add up.

Three-Part Test

To determine if Friday is exempt from overtime, you must determine if there is an exemption from the normal rule that requires all employees to be paid overtime after 40 hours.  Although there is an administrative exemption for white collar employees under the federal Fair Labor Standards Act (“FLSA”), the exemption itself is rather misleading; “administrative” is not as all-encompassing and simple as it sounds.  To qualify for the administrative exemption, all of the following must be met:

1. The employee must be compensated on a salary or fee basis of not less than $455 per week [this is expected to increase to $970 a week sometime in 2016];
2. 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 not production of the company’s product); and
3. The employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

Friday often meets the first two requirements but not the “exercise of discretion and independent judgment with respect to matters of significance.”

“Discretion and independent judgment” involves the comparison and the evaluation of alternative possible courses of conduct, and effectuating a decision after the possibilities have been considered.  “Matters of significance” refers to the level of importance or consequence of the work performed.  Usually, such actions must put the company’s money at risk, and not just a nominal amount.

To exercise independent judgment and discretion, the employee must be able to make an independent choice free from direction or supervision or alternatively make an effective recommendation to take action.  For instance, while the administrative assistant may not have the final say on whether the company adopts a particular policy, his or her recommendation is strongly considered and given great weight.  This does not include the mundane such as where to buy lunch or what kind of office supplies to stock.  Rather it refers to serious business judgments which could cost the Company a significant percentage of its sales or costs.

Some Friday’s are more likely to fall within the administrative exemption then others. For instance, an executive assistant who controls who sees the business owner, what issues will be presented to the owner, and how much time the business owner will be allotted to address an issue.  This is akin to a President’s Chief of Staff; your old fashion secretary won’t meet this standard.

Penalties

Under the FLSA, if the employee is misclassified, you owe unpaid wages for hours worked over 40 per week.    And, since you thought the employee was exempt and did not track his or her hours, the employee’s best guess on the number of hours worked will likely govern.  In addition to back wages, the employee is entitled to liquidated damages equal to 100% of the wages owed, and attorneys’ fees.  The FLSA has a two year or three year statute of limitations depending on willfulness.  State laws, however, may extend the statute of limitations; New York has a six year statute of limitations!

Conclusion

If you just realized that your 50 hours a week administrative assistant is non-exempt, you are probably wondering what to do.  Employers in similar situations have used several approaches, but suffice it to say, this must be handled delicately.

It is likely that the employee will need to be reclassified.  In that case, how you communicate the change can help minimize your exposure.  Also, remember not to create a “smoking gun” documenting possible violations.  Seek experienced counsel to develop the best strategy for your circumstances.  If handled properly, your employee will see the change as fair and move forward rather than looking for past mistakes.  Good luck.

Robert G. Brody is the founder of Brody and Associates, LLC.  Katherine M. Bogard is an associate at the firm.  Brody and Associates represents management in employment and labor law matters and has offices in Westport and New York City.