Exempt or Non-Exempt?

Kegler Brown E-mployment Alert

Unless they are exempt, all employees who work more than forty hours in a week must be paid an overtime premium. The Fair Labor Standards Act ("FLSA") and its Regulations outline the requirements for the exemptions, most of which require payment of a salary and the performance of prescribed job duties. The five most common exemptions are for (a) executives, (b) administrative employees, (c) professionals, (d) outside sales persons, and (e) computer specialists.

There has been a dramatic increase in the last few years in the filing of "collective actions," which are class actions under the Fair Labor Standards Act. These collective actions usually allege that the Company has failed to properly pay overtime to a group or class of employees, and they seek recovery for all affected employees for two or three years' unpaid overtime.

Late last month (January, 2006) IBM Corp. was sued on behalf of a purported class of tens of thousands of hardware and software maintenance workers and installers throughout the country. The allegation is that the employees were improperly classified as exempt, and that they must be paid retroactive overtime payments. While these collective actions attack exemption and overtime pay policies in virtually every industry, a number of them have been focused on insurance adjusters, fast-food restaurant workers, and computer technicians.

The lesson is that employers need to periodically examine their pay practices, the status and validity of exemptions, and any improper deductions from salary payments.