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Exempt vs Non-Exempt
Better Workplace
Better Workforce Better World
How to Classify Your Exempt and Non-Exempt Employees Correctly Special Edition for Connecticut Automotive Retailers Association
KPA: Environmental Health & Safety | HR Management |Sales & Finance Compliance
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A comprehensive solution for Environmental Health & Safety, HR Management, and Sales & Finance Compliance.
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Federal Changes
• Exemption from Overtime = $47,476 ($913 per week)More than $455 but less than $913 will need to be reclassified
• No changes to duties test
• 3 year increases
• Ability to count bonuses, commissions and incentive payments
Federal Exemptions
MINIMUM WAGE/ OVERTIME/ RECORDS
• Executive• Administrative• Professional• Highly Compensated
OVERTIME ONLY • Salesman• Partsman• Mechanic• Commission-paid• Motor Carrier
The FLSA also has an exemption from the overtime pay requirements for certain commission employees of a retail or service establishment. For this exemption to apply, three requirements must be met: (1) The employee must be employed by a retail or service establishment; (2) The employee’s regular rate of pay must exceed one and one half times the applicable minimum wage; and (3) more than half of the employee’s total earnings in a representative period must consist of commissions on goods and services.
Federal versus State Law
• Federal law does not preempt state employment laws
• Employees are entitled to the provision most favorable to them
Connecticut Specific Guidance
The Connecticut laws that cover issues of exempt and non-exempt status of employees along with exceptions to certain overtime requirements are: • CT State Statute 31-60• CT State Statute 31-58 - exempt employees not covered by minimum wage or
record keeping laws.• CT State Statute 31-76i - exempt employees not covered for the purpose of
overtime payment.• Sections 31-60-14, 31-60-15, and 31-60-16 of the Administrative Regulations,
which cover definitions of executive administration and professional employees.• Title 29, Part 541, Code of Federal Regulations of the Fair Labor Standards Act
(FLSA) is the federal law that exempts executive, administrative and professional employees.
Section 31-76i-Conneticut General Statutes
Section 31-71 contains certain provisions that excuse the payment of overtime to certain types of employees
These positions or occupations are exceptions as the relief is only provided for payment of overtime/premium pay
Even thought these employees/positions need not be paid overtime they must be paid at least minimum wage for all hours worked
Auto Dealership Employees Exemption and Exceptions
Auto Sales People. Employees who are primarily engaged in selling automobiles are exempt from the state overtime wage law (CGS § 31-76i(j))Employees Who Sell Maintenance and Repairs. Employees who are employed by licensed new car dealers primarily to sell maintenance and repair services or to sell F&I products have a special exception(CGS § 31-76i(j))Mechanics. Employees who: 1. are primarily employed in servicing motor vehicles or farm implements;2. are employed by someone whose primary business is retail selling and not manufacturing vehicles;3. are exempt from federal overtime pay requirements; and4. have actual weekly earnings that exceed their basic contractual hourly rate for the first 40 hours worked plus one and a half times that rate for all hours over 40.
The “basic contractual hourly rate” is the mechanic's hourly pay excluding any flat, incentive, or other pay (CGS § 31-76i(o)). In practice, mechanics are commonly paid by the job according to rates set by industry manuals. Those rates are based on the number of hours required to complete a job. A mechanic who works faster is still paid the full per-job amount.
EXEMPT only means that these employees generally meet all the criteria and are
generally exempt from overtime
NOT EXEMPT only means that these employees generally do not meet the criteria for this
exemption and generally are not exempt
WARNING! Job titles are not controlling and paying an employee a salary does not exempt an employee from coverage under the minimum wage and overtime laws.
Every employment situation (employee/position) should be looked at on a case by case basis to determine if the position is exempt or non exempt.
CAUTION!
Three Factors
1. How is the employee paid?2. How much is the employee paid?3. What does the employee do?
The employee must be paid a salary, must make a minimum of $47,476 annually or $913 a week and must meet all of the qualification of one of the duties test to be classified as exempt under the FLSA.
FLSA provide an exemption from for computer systems analysts, computer programmers, software engineers, and other similarly skilled workers in the computer field who meet certain tests regarding their job duties and who are paid at least
$455 per week on a salary basis or paid on an hourly basis, at a rate not less than $27.63 an hour.
What is Salary Basis?
• A salary is a predetermined amount paid for each pay period on a weekly or less frequent basis, regardless of the number of days or hours worked
• The amount is not reduced because of variations in the quality of the work or the quantity of the work
• Salary is payment for the “job done” not the “hours worked”
The Duties Test
• Executive • Administrative• Professional • Highly Compensated Employees
“highly compensated employee” exemption under 29 U.S.C. § 541.601. The relevant section of the regulation reads: “An employee with total annual compensation of at least $100,000 is deemed exempt . . . if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional
employee.”
Specific Guidance from Connecticut Department of Labor
Executive Exemption
FEDERAL• Is in charge of a department or sub department AND
• Supervises the work of two or more full time
employees AND
• Receives a salary or guarantee of at least $913.00
per week
STATE• The employee's primary duty must consist of the
management of the enterprise or department in which employed
• The employment must customarily and regularly direct the work of two or more other employees
• The employee must be paid a salary basis of $475.00 per week ($455.00 under FLSA /$913.00 December 1st). If an employee does not meet these requirements then the following criteria must be met
• All the above and a salary of $400.00 per week.• The employee either must have the authority to hire or fire
employees or make recommendation regarding hiring, firing, promotion or other changes in the status of employees.
• The employee must customarily and regularly exercise discretionary powers.
• The employee must not devote more than 20% (or 40% in the case of a retail or service employee) of his hours in the workweek to activities that are not directly and closely related to the performance of the work described above.
Administrative Exemption
FEDERAL• Primary duty is performing non-
manual work related to management policies or general business operations, and
• Exercises discretion and independent judgment with little or no supervision, (holds a position of responsibility) and
• Receives a salary or guarantee of at least $913/wk
STATE•The employee must be compensated on a salary basis of $475.00 per week.•The employee's primary duty must be the performance of office or non-manual work directly related to management policies or general business operations, or the performance of administrative functions in an educational setting in work directly related to academic instruction or training.•The employee must customarily and regularly exercise discretion and independent judgment: The employee must: regularly and directly assist a proprietor, or employee employed in a bona fide executive or administrative capacity; or,b.perform under only general supervision along specialized or technical lines requiring special training, experience or knowledge; or,c.execute under only general supervision special assignments or tasks; d.the employee does not devote more than 20%e. (40% for retail or service establishment employees) of his hours worked in a week to activities not directly and closely related to the performance of the work described above;provided an employee who is compensated on a salary or fee basis at a rate of not less than four hundred seventy-five dollars per week, exclusive of board, lodging, or other facilities, and whose primary duty consists of the performance of work described above, which includes work requiring the exercise of discretion and independent judgment, shall be deemed to meet all of the requirements
Discretion- Defined
An employee under the constant direction of supervisors is not likely to be exercising the degree of discretion contemplated by the exemption.The key question in determining the amount of discretion exercised by the employee, is whether the employee is making the decisions independently or whether he is simply following an established procedure. Even though an employee has significant discretion in judgment, if the discretion applies to the production process, the employee will not qualify under the administrative exemption. The employee must exercise discretion in respect to the company's policies or operations to qualify for this exemption.
Professional Exemption
FEDERAL
• Knowledge of an advanced type in a field
of science or learning that is customarily
acquired by a prolonged course of
specialized intellectual instruction; or
• Invention, imagination, originality or talent
in a recognized field of artistic or creative
endeavor.
STATE• The employee must be compensated on a salary basis of $475 per
week except lawyers, doctors, and teachers.• The employee's primary duty must be:
– work requiring knowledge of an advanced type in a field of
science or learning customarily acquired by the prolonged course of specialized intellectual instruction and study as distinguished from a general academic education or apprenticeship; or
– original and creative work in an artistic field; or– teaching, tutoring, instructing or lecturing as a teacher certified
in the school system or educational establishment by which he is employed;
• The employee's work must require the consistent exercise of discretion and judgment;
• The employee's work must be:– predominantly intellectual and varied in character as opposed to
routine, mental, mechanical or physical work; and– of such character that the output produced or the result
accomplished cannot be standardized in relation to a given period of time.
• Performs office or non-manual work, and
• Is guaranteed total annual compensation of at least $134,004 per year, and
• Performs any one of the exempt duties of an executive, administrative or professional employees
Highly-Compensated Employees Exemption
Commission-Paid Exemption (Federal)
• Employed at a “retail” establishment, and
• Receives the majority of his/her compensation from “commissions”, and
• Receives at least time and one-half minimum wage for all hours worked in an overtime week
Partsman (Federal Only)
EXEMPT
Parts counterShipping/receivingMechanics’ counterTelephone sales
NOT EXEMPT
Parts driverParts inventory
(computer)
Primary duty: stocking, issuing, requisitioning or selling parts
Partsman exemption is not recognized in Connecticut
EXEMPT/EXCEPTION
TechnicianTechnician traineeApprenticeBody man (if doing
technical work) After-market installer
NOT EXEMPT
Quick lube mechanicDetailerNew car get readyPDI technician
Mechanic Exemption (Federal)
Primary duty: performing mechanical or body repair work on a vehicle
Motor Carrier Act Exemption
• Before 2005, the FLSA’s motor carrier exemption applied to all employees who drove a motor vehicle in interstate commerce regardless of the size of the motor vehicle or the number of passengers transported in the vehicle.
• As of August 10, 2005, the motor carrier exemption only applies to drivers of vehicles that weigh in excess of 10,001 pounds.
Bottom LineEmployees who deliver non-hazardous materials in vehicles weighing less than 10,001 pounds (which includes cars and most light trucks) are no longer exempt because they do not drive commercial motor vehicles.
Motor Carrier
EXEMPT
Dealer trade driverAuction driverParts driver (possibly)
NOT EXEMPT
Courtesy van driver
Auto Salesperson Exception
EXEMPT/EXCEPT
Sales person Sales associate Internet sales person
NOT EXEMPT After market sales Greeter BDC worker
Primary duty: selling cars or trucks to the consumer
Wage Payment Example
For each week of work the salesperson must be paid at least minimum wage, even if no commission is earned• Commission only
– Hours Worked = 42– Commission = $550– Minimum Wage: 42 x $9.60 = 403.20– Minimum Wage Equipment Met
• Commission and Salary– Hours Worked = 42– Commission = $150– Salary = $300– Minimum Wage: 42 x $9.60 = 403.20– Minimum Wage Requirement Met
Employees Who Sell Maintenance & Repairs Exception
EXEMPT/EXCEPT
Service Advisor F&I
NOT EXEMPT After market sales Greeter BDC worker
Primary duty: selling maintence and repairs
Mechanic Exception
EXEMPT/EXCEPT
Service Technician Skilled Body Shop Mechanic
NOT EXEMPT Quick Lube Non-technical body shop
worker (sanding)
Mechanics. Employees who: 1. are primarily employed in servicing motor vehicles or farm implements;2. are employed by someone whose primary business is retail selling and not manufacturing vehicles;3. are exempt from federal overtime pay requirements; and4. have actual weekly earnings that exceed their basic contractual hourly rate for the first 40 hours worked plus one and a half times that rate for all hours over 40.
The “basic contractual hourly rate” is the mechanic's hourly pay excluding any flat, incentive, or other pay (CGS § 31-76i(o)). In practice, mechanics are commonly paid by the job according to rates set by industry manuals. Those rates are based on the number of hours required to complete a job. A mechanic who works faster is still paid the full per-job amount.
Wage Calculation Issue:
Failing to pay all the overtime that is due to an employee
Example
Warranty Administrator is paid salary of $600/wk. plus monthly bonus of about $700/mo
She works 50 hours a week
But she’s NOT EXEMPT!!!
DOL’s calculation
2 years overtime on salary: $6,240
2 years overtime on commission: $1,680
TOTAL DUE: $7,920
Private Lawsuit Calculation
3 years overtime on salary: $9,3603 years overtime on commission: $2,520Liquidated damages: $11,880Attorneys fees: $25,000TOTAL DUE: $48,760
Calculating Overtime (Premium)
1) Divide amount of salary, bonus, commission, etc. received in a week by the hours worked in the week.
2) Then take ½ of that figure times the number of overtime hours
3) That gives you the additional overtime due
If an employee is not exempt from overtime…
The employer must pay overtime premium on all compensation the employee receives
$ Hourly wages$ Salary$ Commissions$ Bonuses$ Spiffs$ Payments from the manufacturer
Wage Calculation Issue:
Lack of accurate records
True and Accurate Records
• Name• Home Address• Occupation• Total daily and total weekly hours worked, showing beginning and
ending time computed to the nearest unit of 15 minutes• Total hourly, daily or weekly wage basis• Overtime wages as separate from basic wages• Additions to or deductions from wage by each pay period• Total wages for each pay period• Other records stipulated in 31-60-16 (CT General Statutes)
True and Accurate Records – Exempt Employee
Employer must maintain and retain for a period of 3 years the following information and data on each individual employed in a bona fide executive, administrative or professional capacity• Name• Home Address• Occupation• Total wages for each pay period• Date of payment and the pay period covered by the payment
Wage and Hour Aspects• You can pay commissions weekly, bi- weekly, semi-
monthly or monthly.• You must satisfy minimum wage on the same basis:
weekly, bi-weekly, semi-monthly or monthly• You can “loan” or advance a sales person money to
cover the minimum wage and then recoup it in subsequent weeks or months
• You must pay for all hours worked: sales meetings, off day deliveries, prospecting, etc.
Sales Pay Plans• Put the pay plan in writing and reissue it
whenever you make a change.• All sales people should punch a time clock-• Connecticut requires that employers maintain
accurate payroll records for a minimum of three years
• Failure by the employee to record their time should be treated as a disciplinary issue
Wage Calculation Issue:
Promising an employee a “guarantee”
What is a “guarantee” ?
A. A guarantee of a certain amount of pay?
B. A guarantee of employment for the entire period of the guarantee?
Using the word guarantee can be problematic in pay plans or employment agreement
Wage Calculation Issue:
Treating employees as “independent contractors”
Who is an “independent contractor”?
• Not just because you don’t want to pay benefits• Factors to consider:
– The extent to which services rendered by an individual are an integral part of the principal’s business
– The permanency of the relationship between the individual and the principal
– The amount of investment in facilities and equipment by the individual
– The opportunities for profit or loss by the individual and the method of compensation
Who is an “independent contractor”?• Factors to Consider:
– The degree of independent business organization and operation by the individual
– The degree and nature of control of the individual by the principal
– The degree of independent judgment exercised by the individual who performs the services
– Performance of the same or similar services by the individual for third parties in addition to the principal
– Employment of the individual by the principal in any other capacity
– A comparison of the relationship to other independent contractor operations of a similar nature in the industry
– The right of either party to terminate the relationship on short notice without penalty
“Are they exempt from overtime?”
• What does the employee spend the majority of his time doing?
• How is employee’s pay plan structured?
• Does employee fit exactly into one of the exemption categories?
Irrelevant Factors• Employee is paid a salary- unless meets other
factors for total compensation and duties test
• “We consider employee a manager”
• Employee could supervise someone sometimes
• “When employee was hired, we agreed no overtime would be due”
• “We give them comp time when they work over 40 hours”
Common Classification Mistakes• Not considering differences in state and federal
salary and duties tests• Treating trainees as exempt before they fully qualify
as exempt• Failing to guarantee the proper minimum salary• Prorating the salary of a part-time exempt employee
to less than $913/week• Making improper deductions from salaries of exempt
employees
Reminder- Accurate Recordkeeping is Critical
• The employer must maintain an accurate record of the hours worked by each non-exempt employee each day and each week
• The employer can delegate this duty to employees, but it remains responsible for compliance
• Failure to comply with timekeeping requirements should be treated as a disciplinary issue
• No required format: Punched time cards, handwritten time sheets, computer log, etc., so long as they are accurate
• Without good time records, you are at your employees’ mercy if there is a dispute on wage payment
• Most accurate: Punched time card, swiped card or biometric identification
Questions and Answers
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