Exempt vs Non-Exempt Classification

Significant Changes to Overtime Regulations How They Impact You

• Exemption from Overtime = $47,476 ($913 per week)

More than $455 but less than $913 will need to be reclassified

• No changes to duties test

• 3 year increases

• Ability to count bonuses, commissions and incentive

payments

Federal Exemptions

MINIMUM WAGE/ OVERTIME/ RECORDS

• Executive

• Administrative

• Professional

• Highly Compensated

OVERTIME ONLY

• Salesman (Applies)

• Partsman (may not)

• Mechanic (may not)

• Commission-paid

(Applies)

The FLSA also has an exemption from the overtime pay requirements for certain

commission employees of a retail or service establishment. For this exemption to

apply, three requirements must be met: (1) The employee must be employed by a

retail or service establishment; (2) The employee’s regular rate of pay must exceed

one and one half times the applicable minimum wage; and (3) more than half of the

employee’s total earnings in a representative period must consist of commissions on

goods and services.

Exemptions from Overtime Pay for Marine Dealerships

Exemptions from Overtime Pay Only

Certain commissioned employees of retail or service

establishments; auto, truck, trailer, farm implement, boat, or

aircraft sales-workers; or parts-clerks and mechanics servicing

autos, trucks, or farm implements, who are employed by non-

manufacturing establishments primarily engaged in selling these

items to ultimate purchasers.

From the Department of Labor Reference Guide published November 2014

Three Factors

• How is the employee paid?

• How much is the employee paid?

• What does the employee do?

The employee must be paid a salary, must make a minimum of

$913 per week/ and must meet all of the qualification of one of

the duties test to be classified as exempt.

The Duties Test

1. Executive

2. Administrative

3. Professional

4. Highly Compensated Employees“highly compensated employee” exemption under 29 U.S.C. §

541.601. The relevant section of the regulation reads: “An employee with total annual compensation of at least $100,000 is deemed exempt . . . if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional

employee.”

EXEMPT only means that these employees generally

meet all the criteria and are generally exempt from overtime

NOT EXEMPT only means that these employees generally do

not meet the criteria for this exemption and generally are not exempt

WARNING! Job titles are not controlling

CAUTION!

• Is in charge of a department or sub-department, and

• Supervises the work of two or more full time employees, and

• Receives a salary or guarantee of at least $913/wk

Executive Exemption

Executive Exemption

EXEMPT

Dealer

Dep’t Manager

NOT EXEMPT

Ass’t Manager

CSI Manager

Lot Manager

Inventory Manager

Finance Manager

• Primary duty is performing non-manual work related to management policies or general business operations, and

• Exercises discretion and independent judgment with little or no supervision, (holds a position of responsibility) and

• Receives a salary or guarantee of at least $913/wk

Administrative Exemption

Administrative Exemption

EXEMPT

Buyer

Human Resources

Manager

Office Manager

NOT EXEMPT

Office employees

Warranty Admin.

Accounts Payable

Rental clerk

Booker

Dispatcher

Professional Exemption

• Knowledge of an advanced type in a field of science or

learning that is customarily acquired by a prolonged

course of specialized intellectual instruction; or

• Invention, imagination, originality or talent in a

recognized field of artistic or creative endeavor.

Professional Exemption

EXEMPT

Graphic Artist

Teacher

Attorney

Doctor

NOT EXEMPT

Marketing Coordinator

• Performs office or non-manual work, and

• Is guaranteed total annual compensation of at least $134,004 per year, and

• Performs any one of the exempt duties of an executive, administrative or professional employees

Highly-Compensated Employees

Sale Exemption (Section 7(i) overtime exemption)

What is a retail or service establishment ?

• Retail and service establishments are defined as establishments 75% of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.

Requirements

• The employee's regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and

• more than half the employee's total earnings in a representative period must consist of commissions.

• Unless all three conditions are met, the Section 7(i) exemption is not applicable, and overtime premium pay must be paid for all hours worked over 40 in a workweek at time and one-half the regular rate of pay.

Sale Exemption (Section 7(i) overtime exemption)

• If the employee is paid entirely by commissions, or draws and commissions, or if commissions are always greater than salary or hourly amounts paid, the-greater-than-50%-commissions condition will have been met.

• If the employee is not paid in this manner, the employer must separately total the employee's commissions and other compensation paid during the representative period. The total commissions paid must exceed the total of other compensation paid for this condition to be met.

• To determine if an employer has met the "more than one and one-half times the applicable minimum wage" condition, the employer may divide the employee's total earnings attributed to the pay period by the employee's total hours worked during such pay period. If the result is greater than time and one-half the minimum wage, this condition of the exemption has been met.

WAGE CALCULATION ISSUE:

Selecting incorrect or incomplete periods for testing commission basis pay

Commission Based Pay

Select a representative period of at least one month, but not

more than one year, which typifies the characteristics of the

employee's earning pattern, in order to test whether the

employee is paid principally by commissions.

Wage Calculation Issue:

Failing to pay all the overtime that

is due to an employee

Calculating Overtime (Premium)

1) Divide amount of salary, bonus, commission, etc. received in a week by the hours worked in the week.

2) Then take ½ of that figure times the number of overtime hours

3) That gives you the additional overtime due

Wage Calculation Issue:

Using a poorly-drafted pay plan

Wage and Hour Aspects

• You can pay commissions weekly, bi- weekly,

semi-monthly or monthly.

• You must satisfy minimum wage on the same

basis: weekly, bi-weekly, semi-monthly or

monthly

• You can “loan” or advance a sales person money

to cover the minimum wage and then recoup it in

subsequent weeks or months

• You must pay for all hours worked: sales

meetings, off day deliveries, prospecting, etc.

Sales Pay Plans

• Put the pay plan in writing and reissue it

whenever you make a change

• All sales people should punch a time clock

• If they punch in but not out, make an

estimate of the hours actually worked and

calculate pay on that basis

Wage Calculation Issue:

Promising an employee a “guarantee”

What is a “guarantee” ?

A. A guarantee of a certain amount of pay?

B. A guarantee of employment for the entire

period of the guarantee?

Wage Calculation Issue:

Treating employees as “independent

contractors”

Who is an “independent contractor”?

• Not just because you don’t want to pay benefits

• Factors to consider:– The extent to which services rendered

by an individual are an integral part of the principal’s business

– The permanency of the relationship between the individual and the principal

– The amount of investment in facilities and equipment by the individual

– The opportunities for profit or loss by the individual and the method of compensation

Who is an “independent contractor”?

• Factors to Consider:

– The degree of independent business organization and

operation by the individual

– The degree and nature of control of the individual by the

principal

– The degree of independent judgment exercised by the individual who performs the services

– Performance of the same or similar services by the individual for third parties in addition to the principal

– Employment of the individual by the principal in any other capacity

– A comparison of the relationship to other independent contractor operations of a similar nature in the industry

– The right of either party to terminate the relationship on short notice without penalty

Time Records

• The employer shall maintain an accurate record of the hours worked by each non-exempt employee each day and each week

• The employer can delegate this duty to employees, but it remains responsible for compliance

• No required format: Punched time cards, handwritten time sheets, computer log, etc., so long as they are accurate

• There is no fine for failing to require employees to keep accurate records

• However, without good time records, you are at your employees’ mercy

• Most accurate: Punched time card

Federal versus State Law

• Federal law does not preempt state

employment laws

• Employees are entitled to the provision

most favorable to them

State Wage Law Concerns

1. Higher minimum wages

2. Different or non-existent exemptions

3. Wage payment laws

4. Wage deduction laws

5. “Living wage” laws

Some Exemption Examples

• IL and NV do not recognize “partsman”

• MA does not recognize “s,p,m”, but has an exemption for “garageman”

• NY recognizes “s,p,m” only if they receive 1½ times the NY minimum wage

• NV and CA require OT after 8 hours in a day

Payroll Practices: Red Flags

Watch out for “red flags” regarding payroll practices:

– Improper deductions from salaried employees

– Improper calculation of “regular rate”

– Job descriptions for exempt employees that do not reflect exempt duties

– Nonexempt employees working through meal breaks

– Nonexempt employees performing work before or after they punch or log in/out

– Employees who routinely stay late but have no overtime

– Not complying with employer’s own written policies

Partial Exemptions(OVERTIME only)

• Salesman

• Partsman

• Mechanic

• Commission-paid

Salesman

EXEMPT

Sales person

Sales associate

Internet sales person

Service Writer

NOT EXEMPT

After market sales

Greeter

Finance Manager

Motorcycle salesman

BDC worker

Primary duty: selling cars or trucks to the consumer

Partsman

EXEMPT

Parts counter

Shipping/receiving

Mechanics’ counter

Telephone sales

NOT EXEMPT

Parts driver

Parts inventory

(computer)

Primary duty: stocking, issuing, requisitioning or selling parts

EXEMPT

Technician

Technician trainee

Apprentice

Body man

After-market installer

NOT EXEMPT

Quick lube mechanic

Detailer

New car get ready

PDI technician

Mechanic

Primary duty: performing mechanical or body repair work on a vehicle

“Are they exempt from overtime?”

• What does the employee spend the

majority of his time doing?

• How is employee’s pay plan structured?

• Does employee fit exactly into one of

the nine exemptions?

Irrelevant Factors

• Employee is paid a salary- unless meets other factors for total compensation and duties test

• “We consider employee a manager”

• Employee could supervise someone sometimes

• “When employee was hired, we agreed no overtime would be due”

• “We give them comp time when they work over 40 hours”

Common Classification Mistakes

• Not considering differences in state and federal salary and duties tests

• Treating trainees as exempt before they fully qualify as exempt

• Failing to guarantee the proper minimum salary

• Prorating the salary of a part-time exempt employee to less than $913/week

• Making improper deductions from salaries of exempt employees

If an employee is not exempt from overtime…

The employer must pay overtime premium on all

compensation the employee receives

$ Hourly wages

$ Salary

$ Commissions

$ Bonuses

$ Spiffs

$ Payments from the manufacturer

Questions and Answers

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Contact Information

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