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by David James and Joe Schmitt

In the summer issue of Ag Innovator, we discussed the Department of Labor’s latest attempt to raise the salary threshold for exemption from overtime. The DOL is aspiring for a Jan. 1 effective date on the rule. We will keep you apprised of developments.

In the meantime, now is a good time to remember that paying employees on a salary basis and meeting the applicable salary threshold is not enough to conclude that an employee is exempt from receiving overtime. Employees must also perform certain job duties to be exempt. While there are a variety of exemptions available, the two most common are the executive and administrative.  

The executive exemption applies to an employee who meets the following job requirements:

The employee’s “primary duty” is managing the business or a recognized department;

The employee “customarily and regularly” directs the work of at least two or more full-time employees (or the equivalent of 2.0 FTEs); and

The employee has the authority to hire or fire other employees, or the employee’s suggestions regarding such personnel decisions are given greater weight.

A “primary duty” is the most important part of the job. It ought to be a part of the job without which the job would not exist. Generally, it does not have to occupy a majority of the employee’s time, although that would be strong evidence that it is primary. 

To “customarily and regularly” direct other employees means more than occasional but less than constant. If directing employees is accomplished every workweek, this requirement is likely met.

The administrative exemption applies to an employee who meets the following job requirements:

The employee’s “primary duty” is the performance of office or non-manual work directly related to the management or general business operations of the organization; and

The employee’s primary duty includes the exercise of discretion and independent judgment regarding matters of significance.

The same concept of “primary duty” applies here, but in the context of an administrative department. Typical administrative departments that may have exempt employees include finance, accounting, purchasing, marketing, human resources, compliance, and safety. Notably, departments related to production and sales generally do not qualify for the administrative exemption.

The most challenging component of the administrative exemption (and indeed, all exemption tests) is the concept of “exercising discretion and independent judgment.” To meet this requirement, an employee generally must have the authority to evaluate possibilities and make a decision without immediate direction or supervision. If a leader occasionally reverses the decision, an employee can still be exempt, as long as this is not the norm. Additionally, “discretion and independent” judgment does not include applying existing protocols or guidelines; an employee should regularly be operating in the gray. If the decision-making could be reduced to a manual (in practice or theory), it does not include sufficient discretion to meet the test.

We will keep you apprised of the DOL’s efforts to raise the salary threshold for exempt status. As you are evaluating these developments, also keep in mind the job-duty requirements for the executive and administrative exemptions, and consider whether your salaried employees are appropriately classified. As always, let us know if we can help with this review or any other legal issues associated with your workforce. 

David James (left) and Joe Schmitt are shareholders in the labor and employment group at Nilan Johnson Lewis. Association members are entitled to no-cost, confidential, 60-minute consultations with James and Schmitt. Call the firm at (612) 305-7500. James will lead a session at the fall convention.