The administrative exemption to the overtime pay requirements can be tricky to apply and employers would be wise to review such classifications carefully. Companies often, to their detriment, misclassify non-supervisory administrative employees under this exemption without realizing that the performance of administrative-type duties, even if important or indispensible to the company, is not enough to exempt those employees from being paid overtime wages. A Charles Town, West Virginia horse racing facility found this out the hard way.
Three former Racing Officials sued the race track, claiming that they routinely worked over forty hours in a workweek without proper overtime pay compensation. The track claimed that the employees were administratively exempt because they ensured that the race track complied with various regulations, ensured proper race outcome determinations, and had other indispensible duties. The track asserted that the Officials’ duties included “quality control, safety and health, public relations, and legal and regulatory compliance,” which the overtime pay regulations identified as administratively exempt duties that were “directly related to the management or general business operations of the employer.”
The Fourth Circuit Court of Appeals disagreed with the race track. Their opinion provides guidance to other employers who fail to pay overtime wages to employees whose non-supervisory jobs are “indispensible” to the company and fall within potential exempt duties as noted in the list, above. The Court made clear that the job’s “importance” is irrelevant. Rather, to determine whether the employees were, indeed, related to the company’s “management or general business operations,” the test is not just whether the listed functions are performed, but whether the employees were actually part of the company’s management, or were part of the production staff that helped the company deliver the product or service it offered to the public. Since the Court found that the Racing Officials had production-side roles and were akin to production workers who made sure that the races the track “produced” occurred, the Racing Officials did not satisfy the requirements of the administrative exemption.
The overall federal exemption has three parts:
- That the employee is paid a weekly salary of at least $455.00/week (note that state law may require a higher salary threshold);
- The employee performs office or non-manual work, which is directly related to management or general business operations of the employer or the employer's customers; and
- The employee’s primary duty involves the exercise of independent judgment and discretion about matters of significance.
An employee must meet all three to be exempt from the overtime pay requirements. Having a job with independent judgment and discretion is not enough, as this race track learned, if those important functions are not related to the business’s general operations. Given the Department of Labor’s new enforcement environment and its beefing up enforcement of the various regulations under its jurisdiction, employers would be wise to reevaluate their employees who are currently classified as administratively exempt to ensure they satisfy all requirements so as to avoid potential fines and penalties due to misclassification.