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As employment law constantly changes, the attorneys at Bean, Kinney & Korman stay up to date on the law as it develops. Our blog topics focus on those changes and what you need to know about them, ranging from severance agreements and the FLSA to social media in the workplace and recent court decisions. If you are interested in having us cover a specific topic, please let us know.

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Are Managers Who Perform Non-Managerial Duties Entitled to Overtime Pay?

The Fair Labor Standards Act requires employers to pay overtime to employees who work more than forty hours in a given week.  The Act provides several exceptions or “exemptions” to the forty hour rule.  If an employee falls under one of these exemptions, they are not entitled to overtime compensation.

businessman checking inventory

One exemption that is commonly used by employers and which has become the subject of recent debate is the “executive exemption”.  An employee falls under the executive exemption and is not entitled to overtime when he or she is an employee employed in a bona fide executive capacity. 

Under the FLSA and its associated regulations, an employee qualifies under the executive exemption when the following criteria are met:

  • The employee is compensated on a salary basis at a rate not less than $455 per week
  • The employee’s primary duty is management of the enterprise, department or subdivision
  • The employee customarily and regularly directs the work of two or more employees
  • The employee has the authority to hire or fire other employees or their suggestions as to hiring, firing, advancement or promotion or any other change in status are given particular weight 

The second factor, whether the employee’s primary duty is management, has become the subject of controversy in recent years.  Many companies attempting to cut costs will require managers to serve dual roles, acting in both a managerial and employee capacity.  For example, a manager may spend part of their day interviewing employees and arranging schedules and then spend another part helping stock shelves or greet customers.  This multitasking has brought into question whether such an employee still qualifies under the “executive” exemption when performing dual roles.  

Recent Developments in the Law 

In Grace v. Family Dollar, Inc., the Fourth Circuit Court of Appeals recently upheld a decision of the U.S. District Court for the Eastern District of Virginia finding that a manager engaged in the dual role of manager and employee qualified under the executive exemption.  

Grace, a former employee of Family Dollar filed suit claiming that she was entitled to overtime compensation because she spent the majority of her working time completing nonexecutive tasks.  Grace was the manager and highest level employee of a Family Dollar Store.  She was responsible for managing employees, managing store operations, dealing with customer and employee complaints and was responsible for the overall profitability of the store.  

Grace argued that she was entitled to overtime because even though she was responsible for managing, the majority of her time was spent on nonexecutive tasks such as unloading freight, stocking shelves, operating cash registers and cleaning the store.  Grace estimated that she spent 95% of her time on these tasks.  

The Court held that Grace concurrently managed the store while performing these nonexecutive tasks and that her performance of these tasks was in furtherance of the larger goal to make the store profitable.  Grace operated the store with little supervision and her management was essential to the function of the store.  As a result, despite the amount of time she spent on nonexecutive tasks, her primary duty was management and as such exempt status was appropriate.

The Family Dollar case is instructive in that in its analysis the Court spent a large part of the analysis looking at the duties actually performed by the employee and not just what was listed in the job description.  

Practice Pointers 

Managers can be expected to perform executive and nonexecutive duties.  If the employee is to be classified under the executive exemption, it is incumbent upon the employer to ensure that the employee is primarily performing managerial tasks.  Remember, it is not just what a job description may say, but what the employee actually does that is important. 

Below are several points that will help ensure that a manager is primarily performing managerial tasks:

  • How much time is does the employee spend performing managerial duties?
  • What are the specific managerial duties performed by the employee?
  • How important are these managerial duties to the overall operation of the company, store or department?
  • How often is the employee exercising managerial duties?
  • What is the level of supervision of the manager employee?  Is the manager closely supervised?
  • What company procedures are in place to control manager decision making?  Do these procedures give managers discretion?
  • How is the employee compensated when compared to non-manager employees?  If the manager is salaried, what is their actual compensation when the actual hours worked in taken into account?
  • Develop a comprehensive job description that lists the major duties, both executive and nonexecutive, that will be performed by the employee.
  • Conduct periodic internal reviews of the employee’s performance, paying special attention to the actual tasks performed and the amount of time spent on the specific tasks.