Case Study 1 Exempt or Nonexempt Employees
Shawnte Reed
Liberty University
Compensation Management
BUSI 645-B01
Dr. Ed Sherbet

Case Study 1 Exempt or Nonexempt Employees
There are many benefits to having a management or leadership position. A manager is normally paid a salary, while lower level workers are paid an hourly wage. Some other benefits managers usually receive are sick leave and vacation time. However, there are drawbacks to having a management position such as overtime and working hours. Managers often are exempt from overtime pay even when they work extended hours during the work week. Consequently, managers are paid the same amount of money whether they work eight hours or twelve hours. This case study involves Jane, a shift leader at a department store. Jane does not receive overtime pay even though she works up to 50 hours per week because she is an exempt employee.
Policy pertaining to overtime pay is set by the Fair Labor Standards Act (FLSA). According to the FLSA, “ employers are to pay overtime rates (one-and-a half times regular pay) for any hours worked in excess of forty hours in a work week with exemptions for employees acting in an executive, administrative, or professional capacity” (Dorris, 2009, p. 1253-1254). Exempt employees fill positions that are classified as executive, learned professional, administrative, computer, outside sales, and creative professional. Jane is classified as an exempt employee because she is part of the management team. Based on the previous she is most likely classified as an executive or administrative employee. Martocchio (2015) defines the executive criteria as “management of the enterprise or a recognized department or subdivision” and administrative as “performing office or non-manual work directly related to the management or general business operations of the employer or employer’s customers. Jane stated that half of her time was spent performing management duties. The other half of her duties involves cashier or assisting customers when demand is high. These activities are considered non-manual and are categorized as general business operations.
Jones Department Store decided to classify the Shift Leader position as a management position. Frederick (2011) points out that current regulations governing executive exemption and current case law that covers them, unduly favor the employer and pose an nearly insurmountable obstacle to overtime claims, at least in the context of low-salaried retain supervisors” (p. 280). There are times when managers will have to work long hours to fulfill their duties or assist with other task to make sure the job gets done or ensure the customer is satisfied. In this case the shift leaders assigned store associates to positions throughout the store, handled personnel issues, defused basic customer issues, and assisted with interviews for open associate positions. By classifying these employees as exempt Jones Department Store is not required to pay them overtime pay for extra hours worked. In essence, the department store saves money. The private sector spends over $19 billion in back overtime pay due to mistakenly classifying employees as exempt (Crampton, et al, 2003). Jane as well as the other shift leaders are properly classified as exempt employees based on the duties they currently perform. The FSLA regulation states, “exempt status of retail store managers depends on whether they have management as their primary duty and if an employee spends more than fifty percent of their time on managerial duties, than, that employee, barring exceptional circumstances, has the primary duty of management and is exempt” (Frederick, 2011, p. 283).
There are many factors to consider when classifying an employee as an exempt or nonexempt employee. However, the governing regulations can be confusing to understand, therefore proper interpretation is crucial to ensure employees are compensated correctly and prevent the company from being involved in future litigation. Amy has a duty as the story manager to be familiar with the FSLA especially when classifying positions as exempt. Any should consider what the salary of the shift leader, according to the FSLA manager’s desk reference (Coleman, 2009). Coleman (2009) explains that employees with an annual basic pay less than $23,600 are nonexempt and covered by FSLA, whether the position is supervisory or nonsupervisory employees (p. 8). The case study did not mention Jane’s salary, but I feel we can safely assume her pay was above the threshold as she was a middle manager in the company. However, Crampton offers a short and long test to be used when determining exemption status.
In the short test, they must earn $250 or more per week (approximately $13,000 per year or more), their primary duty must be management, and they must regularly direct the work of at least two other employees. If executives earn more than $155 per week but less than $250 per week, they must meet the requirements of the long test. The long test includes the requirements of the short test, plus the employees must have the authority to hire or fire employees or to make recommendations on hiring, firing or disciplining workers; they must customarily and regularly exercise discretionary powers in their work; and they must not spend more than 20 percent of their time in a week on activities not closely related to management duties (Crampton, Hodge, & Mishra, 2003).
Once salary has been established, Amy should review the employee exemptions criteria. As we discussed earlier, employees can also be designated as executive, administrative, and learned, computer, or creative professionals, Employers will have to choose from a list of variables when deciding if the primary duties fit the exempt status. The human resource managers can be helpful in assisting with current regulations and policies regarding exemption and nonexemption status. Arguments pertaining to administrative exemption are being heard in the federal courts since 1938 and are the more than any other Act’s (Betangna, 2012, p. 485). Therefore it is beneficial for all involved to know and understand what exemption the employee is classified as when the employee is hired. In conclusion, there are many variables involved when determining an employee’s exemption status. The regulations regarding overtime are often vague and not easy to interpret. To avoid any litigation employers should ensure employees are classified properly and conduct due diligence to inform them of their classification when they are first hired. We clarified that Jane is part of the management team and should be an exempt employee for overtime pay.

References
Bertagna, B. (2012). The miscellaneous employee: Exploring the boundaries of the Fair Labor Standards Act’s administrative exemption. Hofstra Labor & Employment Law Journal, 29(2), p. 485-545. Retrieved from http://search.ebscohost.com.ezproxy.liberty.edu:2048/login.aspx?direct=true&db=a9h&AN=79993164&site=ehost-live&scope=site
Coleman, W. (2009). Fair Labor Standards Act: A manager’s desk reference. Retrieved from http://www.ntc.blm.gov/krc/uploads/391/FLSA%20Manager%20Guide.pdf
Crampton, S. M., Hodge, J. W., & Mishra, J. M. (2003). The FLSA and overtime pay. Public Personnel Management, 32(3), 331-354. Retrieved from http://search.proquest.com/docview/215931166?accountid=12085
Dorris, D. V. (2009). Fair Labor Standards Act preemption of state wage-and-hour law claims. University of Chicago Law Review, 76(3), 1251-1285. Retrieved from http://search.ebscohost.com.ezproxy.liberty.edu:2048/login.aspx?direct=true&db=a9h&AN=4707715&site=ehost-live&scope=site
Frederick, D. (2011). Exempt executives? Dollar General store managers’ embattled quest for overtime pay under the Fair Labor Standards Act. University of Pennsylvania Law Review, 160(1), p. 277-329. Retrieved from http://search.ebscohost.com.ezproxy.liberty.edu:2048/login.aspx?direct=true&db=a9h&AN=70149577&site=ehost-live&scope=site
Martocchio, J. J. (2015). Strategic compensation: A human resource management approach (8th ed.). Upper Saddle River, NJ: Pearson Education.