YOU MEAN EXEMPT, NOT SALARIED

Steven Cesare, Ph.D.

A business owner from Wisconsin contacted me the other day to tell me that he wanted to make one of his “supervisors” a salaried employee. He proceeded to say that by making the supervisor “salaried,” the supervisor would have a more stable income from week-to-week. While I agreed with that aspect of the proposal, I quickly informed the owner that “salaried” employees can be legally classified as either non-exempt or exempt. Much to the surprise of the owner, non-exempt salaried employees must still be paid overtime rates as defined by state or federal law, while exempt salaried employees do not receive overtime pay.

To support my point, I told the owner the real distinction is not between hourly and salaried, but rather non-exempt and exempt. To simplify a very bureaucratic, arcane, and misunderstood topic, I gave a brief overview of the Fair Labor Standards Act, Administrative Exemption, which defines the two tests necessary to be classified as an exempt employee:

1) Salary Test:

To qualify for the Administrative Exemption, the employee must be compensated on a salary rate not less than $684 per week (this rate applies to Wisconsin, though it varies in other states, most notably, California); and

2) Duties Test:

To qualify for the Administrative Exemption, 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 the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

With reference to the owner’s original proposal, the supervisor was making more than $684 per week and as such, satisfied the requirement of the Salary Test.

However, when asked if the supervisor’s primary duty involved “manual work” (e.g., mowing, edging, pruning, trimming, planting) or non-routine tasks that involved “discretion and independent judgment” (e.g., employee selection, performance reviews, estimating, labor scheduling, reviewing proposals), the owner divulged that during an average workweek, the supervisor spends more time working with the crews than performing tasks requiring discretion and independent judgment. Thus, it quickly became clear that the supervisor did not satisfy the requirement of the Duties Test. Therefore, the supervisor could not be classified as exempt.

In actuality, the owner simply wanted to classify one of his Foremen as a “supervisor” and then pay him a salary, thinking he could work the supervisor more than 40 hours per week and avoid all overtime expenses (and in some states, required meal periods). Such a misclassification could have led to major fines, unpaid overtime wages, and other financial liabilities to the owner.

Within the green industry, positions at the level of Foreman, Irrigator and below, as well as Mechanic and Administrative Assistant are almost always non-exempt. Conversely, positions at the level of Account Manager, Estimator, and Office Manager are almost always exempt. Positions like “Supervisor” must be clearly analyzed against the Salary Test and Duties Test to determine their accurate classification.

So, in practical terms, the owner could make the supervisor a non-exempt salaried employee, which would require overtime payments; but he could not legally make the case for the supervisor to be an exempt employee.

If you have any questions or comments about this topic or anything else related to human resources, simply call me at (760) 685-3800.