Misclassified as an Exempt Employee?
Are you misclassified as an exempt employee?
Under federal law (i.e., the Fair Labor Standards Act) and New York Labor Law (“NYLL”), individuals must be paid time and one half for all hours worked over forty in a workweek, unless they satisfy one of the exemptions from overtime (hence, “exempt employee”). In order to be exempt, you must satisfy (1) the duties and (2) salary tests. There are several types of exemptions an employee can fall under to be exempt. This includes, but is not limited to, the “Executive Exemption” and the “Administrative Exemption.” The foregoing are just some of the exemptions. An individual should contact an attorney to ascertain whether the foregoing exemptions apply and/or whether there’s another exemption that could apply to them. In all cases, employees should not assume they are exempt from overtime.
a. Executive Exemption – aka the Managerial exemption
This exemption is most often incorrectly misclassified. Often, employers will call an individual a “manager” and pay them a “salary,” believing the foregoing is sufficient to avoid having to pay the individual overtime. They are often wrong. There are several considerations to whether you are entitled to overtime or not.
i. You must be paid a salary. For 2023, in New York City, Long Island and Westchester County, you must receive, at least, $1,125 a week. For all other counties in New York In New York, you must receive , you must receive at least $1,064.25 per week. If you receive a penny less, you are misclassified as exempt.
Additionally, there are only finite reasons why an employer can withhold or reduce your salary. For example, if you are sick and run out of sick days, the employer may not be able to take a partial day deduction from your wages. If the employer does, and has a practice of doing so, they may violate the salary basis test and, ultimately, ruin their ability to claim you are exempt from overtime.
ii. Your primary duty must be managerial. In other words, the function that you do the most must be managing of the enterprise, or managing a customarily recognized department or subdivision of the enterprise. If you are almost exclusively performing grunt-level, associate-type tasks, you may be misclassified.
Stevenson Marino LLP successfully recovered $11.75 million dollars from Lumber Liquidators for their misclassification of Store Managers (“SMs”) at their stores nationwide. We alleged that their SMs were largely performing grunt-level work (i.e., selling merchandise; servicing customers; stocking merchandise; loading merchandise; cold-calling; etc.). At many of the LL stores, SMs were working with only one other employee. We alleged that they were not “managing” the employees, but merely working along side them. Ultimately, after years of litigation in two states, LL opted to resolve the litigation for a significant sum (and started paying overtime to their “managers.”). Please note that our prior successful results do not guarantee a similar outcome.
Another example of the classic misclassification of managers occurs where someone is a “training manager.” Often, individuals are promoted into a manager position and then spend weeks or months training for the position. These positions are often called “Training Manager,” “Training Store Manager,” “Manager in Training,” “Store Manager In Training,” or may even just receive a regular “manager” title, even though he/she is merely training for the position. These types of classifications are the lowest-lying fruit in misclassification cases because, simply, if you are training to perform managerial functions, you are not managing. Almost every instance of these types of cases involve training managers working alongside another manager who is training them. It is the manager who is training the training manager who wields the managerial authority – and the correct exemption.
iii. You must supervise at least two or more full time employees that work at least 80 hours per week. If you, as a manager, do not have at least two full-time employees (not independent contractors), who do not work a total of 80 hours per week – you are likely misclassified as exempt. The key here is that there must be at least two employees and the total hours of all subordinates that you manage must be at least 80 hours every week. This is a relatively black and white analysis which can be proven or disproven with wage statements/time records.
iv. You must have the authority to hire or fire employees or your recommendations as to hiring or firing must be given particular weight. If you are not given the authority to hire or fire employees and you have no input in such decisions, you are likely misclassified. Often, in small business settings where the owner is present, the “manager” likely fails this test because the owner will do all of the hiring/firing, leaving the “manager” there only to do routine tasks. If this is the case, the “manager” does not have the relevant authority to satisfy this prong, rendering the individual misclassified as exempt.
b. Administrative Exemption – aka the typical “Office/Payroll Manager.”
i. You must be paid a salary. (See above).
ii. Your primary duty must be non-manual in nature and related the back-office functions of the business. In other words, you should not perform trivial tasks, but rather managerial functions that are critical to the business. Moreover, the functions you perform cannot be related to the sales/revenue of the business, but rather back-office functions that are required to keep the business operating.
This exemption is typical of a Payroll Manager, an Office Manager in a doctor’s office, or another administrative-type manager, who has nothing to do with revenue, but everything to do with keeping the business afloat.
iii. Your primary duty must include the exercise of discretion and control with regard to matters of significance. In layman’s terms, this means that manager must have independent thought and be able to bind the company with regard to important matters (e.g., enter into contracts; negotiate with vendors/customers/clients – without being bound by strict guidelines).
We note, however, that any individual in this position cannot merely do routine tasks, but must instead wield independent thought and judgment with regard to important matters that affect the business. If the individual merely follows a strict regiment of guidelines, they will likely not be a “manager” under this exemption. Thus, the typical case where a manager fails this factor is a business that is owner-occupied. For example, most small doctor’s offices have an office manager. The office manager is closely supervised by the doctor-owner. The Doctor-owner will typically make all important decisions, leaving the office manager with no real discretion as to important matters. In this case, the office manager is likely misclassified as exempt and entitled to overtime.
c. General Question and Answer:
i. Does my title matter? A. Often, it does not. What matters are your actual duties. If I am a janitor, but am called the King of Janitorial Services, but may duties involve exclusively janitorial work – I am likely entitled to overtime.
ii. Do my job duties matter? A. Yes. Job duties and responsibilities are one of the most important factors in whether or not someone is entitled to overtime or not. If your job duties largely require you to do menial, associate level work as your primary function, then you may be misclassified as exempt and entitled to overtime.
iii. Can I agree to not be paid overtime so I can get extra hours? A. An individual cannot agree to violate the law. Every individual is entitled to overtime, absent few exemptions. Even if an employee signs an agreement promising they will never seek overtime and waive all rights to do so, such agreement is void and unenforceable.