How Are Executive Employees Defined For FLSA?

Monday, June 07, 2010

The Code of Federal Regulations, Title 29, Chapter V, Part 541, Subpart B; defines the rules for exemption of executive, administrative, professional, computer and outside sales employees for the purposes of FLSA. If we focus our attention on executive employee exemptions, it becomes very clear that an analyst must look carefully at the duties of any employee or position believed to be exempt.

In general, to be considered an “executive” employee and eligible for exemption the position or employee must meet the following:

Compensated on a salary basis at a rate of not less than $455 per week exclusive of board, lodging or other facilities;

Primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;

Customarily and regularly directs the work of two or more other employees;

In addition, has the authority to hire, fire employees or whose suggestions/recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.

``Employee” also includes a person who owns at least 20% equity interest in the enterprise in which the employee is employed, regardless of whether the business type of organization, and who is actively engaged in the management of the enterprise.

``Management'' of an organization includes,
Interviewing, selecting, and training of employees;
Setting/adjusting rates of pay and hours of work;
Directing the work of employees;
Maintaining production or sales records for use in supervision or control;
Appraising employees' productivity and efficiency for recommending promotions or status changes;
Handling employee complaints and grievances;
Disciplining employees;
Planning the work;
Determining work techniques;
Apportioning work among employees;
Determining materials, supplies, machinery, equipment or tools used or merchandise bought, stocked and sold;
Controlling flow/distribution of materials or merchandise/supplies;
Providing for safety/security of employees/property;
Planning/controlling the budget;
And
Monitoring/implementing legal compliance measures.

A “recognized department or subdivision'' is generally defined to mean:

Organizational unit with a permanent status and a continuing function;
The employee in charge of multiple establishments within an enterprise is considered in charge of a recognized subdivision of the enterprise;
A recognized department or subdivision may not be physically located within the employer's establishment and may move from place to place;
And
Continuity of the same subordinate personnel is not essential to the existence of a recognized unit with a continuing function.

To meet the exemption criteria as an executive,

The employee must customarily and regularly direct the work of two or more full time employees or their equivalent;
Supervision can be distributed among two or more employees, but each such employee must customarily and regularly direct the work of two or more other full-time employees or the equivalent;
Assisting a manager of a department and supervises two or more employees only in the manager's absence does not meet this requirement;
Hours worked by an employee cannot be credited more than once to different executives;
And
Concurrent performance of exempt and nonexempt work does not automatically disqualify an employee from the executive exemption.

As with any issues dealing with legal compliance, employers should seek, qualified professional assistance before making changes in their work place practices.