Properly Classify Employees As “Exempt” or “Non-Exempt”

June 24th, 2019

A school’s legal obligations under the federal Fair Labor Standards Act (FLSA), and now Michigan’s Paid Medical Leave Act (PMLA), often depend on whether an employee is “non-exempt” under the FLSA. Improperly classifying employees as “exempt” may result in significant liability.

Under the FLSA, non-exempt employees must be compensated at a rate of time-and-one-half for hours worked in excess of 40 per week. The FLSA also imposes recordkeeping requirements on employers for non-exempt employees (e.g., documenting all hours worked).

Non-exempt employees are typically compensated on an hourly basis; however, simply because an em­ployee receives a salary rather than an hourly wage does not necessarily mean that the employee is exempt. The analysis must look beyond how the employee is compensated and examine whether the employee’s duties satisfy the FLSA’s requirements.

The FLSA contains specific exemptions for teachers and academic administrators, so the key focus for schools is on non-instructional employees. Non-in­structional school employees may be treated as exempt if they meet three general FLSA requirements:

  • The employee is paid on a salary basis, meaning he or she is paid a set salary amount that, with few exceptions, does not vary from week to week;
  • The employee is compensated at least $455 per work week ($23,660 annually); and
  • The employee’s primary duty meets one of the exemptions (i.e., administrative, executive, or professional) described below. Misapplication of the “duties test” often causes the misclassification of school employees.

Administrative Exemption

Under the “administrative” exemption, an employee must perform non-manual duties related to the school’s management or general business opera­tions. The employee must exercise independent discre­tion and judgment on matters of significance, as opposed to exercising duties that are largely data entry or simply following set rules and policies. This could in­clude a business manager or other central office staff, depending on their duties.

Executive Exemption

For the “executive” exemption, an employee must manage operations, direct the work of two or more other school employees (not independent contractors), and have managerial authority over those employees (e.g., the authority to hire, fire, evaluate, and promote). Examples may include a transportation director or an operations director.

Professional Exemption

For the FLSA’s “professional” exemption, an employee must perform work requiring advanced knowledge, often demonstrated by required higher ed­ucation, and the employee must consistently exercise his or her discretion and judgment. School psycholo­gists, speech pathologists, and social workers often qualify.

Obligations for Non-Exempt Employees

An employee who does not meet an exemption must be treated as non-exempt, and schools must track all of the employee’s time worked and compensate the employee accordingly. “Time worked” under the FLSA means all time that the school suffers or permits an em­ployee to perform services. This includes preliminary and postliminary activities like inspecting buses or completing incident reports and time that an employee spends attending required trainings or drug testing.

School officials should be wary of collective bargaining agreements that do not calculate compensa­tion based on time worked, like provisions that pay bus drivers on a “per run” basis. Schools should track every hour that a non-exempt employee works. Reliance on stipends for specific jobs often prevents compliance and fails to ensure that an employee receives eligible overtime compensation if the employees’ hours are not tracked appropriately.

When a non-exempt employee works more than 40 hours in a week (e.g., Sunday through Saturday), the FLSA requires that the school compensate the em­ployee at a rate of time-and-one-half normal hourly com­pensation. If a non-exempt employee works more than 40 hours in two different positions during a week, the overtime rate is calculated by blending the pay rate of both positions, based on the respective hours worked in each. Overtime is not calculated using the lowest pay rate for that week.

As school officials review staffing needs, job descriptions, and employment contracts for the 2019-20 school year, pay particular attention to whether a position that is currently classified as exempt actually meets an FLSA exemption. If an exempt position does not meet the FLSA’s duties test, that position should be reclassified as non-exempt and the employee should be paid on an hourly basis, rather than with a salary. The school will need to implement timekeeping and track­ing procedures to appropriately capture all of the employee’s hours worked.

School officials also should review collective bargaining agreements for provisions that set flat com­pensation regardless of time-worked or extra-duties (e.g., custodians being paid a flat fee for taking down a weekend event regardless of hours worked). While a collective bargaining agreement may exceed the FLSA’s requirements, it may not set compensation below the FLSA’s requirement that employees be paid time-and-one-half overtime when working more than 40 hours in a week.