Jan 23, 2012

Managers, Outside Sales People, and Overtime Exemptions: What You Need to Know

[caption id="attachment_393" align="alignright" width="425" caption="Outside Sales Classification"]

[/caption] On Oct. 28, 2011, The Hartford Courant¹ reported that AT&T won an overtime lawsuit brought by 200 managers who alleged they were entitled to overtime pay. Although wage and hour laws ensure that employees who work in excess of 40 hours per week receive time-and-a-half for extra hours worked, there are certain exemptions to this rule. In the AT&T case, the managers were found to fall within these exemptions because they were managers who held supervisory positions and who made salaries of upwards of $80,000 per year.

Exemptions to Overtime

The Fair Labor Standards Act² gives workers both the right to overtime as well as other wage and hour protections. The AT&T employees who filed suit were alleging that they had a right to overtime under the Fair Labor Standards Act.³ The court disagreed, however, saying they were "executive, administrative, and professional employees" and thus exempt under FLSA rules. There are two tests generally used to determine whether an employee falls within the executive/professional exemption: The first looks at what the employees’ duties are,⁴ and the second looks at whether the employees are paid on a salary basis.⁵ Certain examples of exempt duties include hiring, firing, and scheduling employees, formulating personnel policies, and determining staffing levels. Nonexempt duties include food preparation, telemarketing, and bookkeeping, among others. In the case of AT&T, the employees suing were clearly salaried workers and had responsibility for supervising other employees below them, and for making scheduling and staffing decisions. For this reason, the victory for AT&T was relatively straightforward.

Exemptions for Outside Sales Workers

Although the "manager" exemption to overtime rules is clearly defined and established, another exemption also exists for those considered "outside sales" workers. This exemption can be more difficult to apply. Defining who is considered an "outside sales" worker can be a complicated task, but many states have carved out specific rules used to guide the courts and employers. For instance, in a 1999 California case called Ramirez v. Yosemite Water Co.,⁶ the California court ruled that an employee must spend at least half of his time away from his office in order to be considered an outside salesperson exempt from overtime. In September, a Kern County, California, judge shed more light on this issue when he ruled that the "office" did not have to be a main office or branch of a company in order for an employee to be considered "at the office," according to an article on HG.org.⁷ For instance, the time an employee spent working from his own home office could be considered to be "at the office." In fact, any fixed site where the employee made phone calls or performed required office work could fall within the definition. To make a determination of how much time an employee is actually spending "at the office" versus in the field, courts will look at the testimony of employees and employers. They will also look at phone records, computer and email records, and other evidence of work performed in the event that there is a dispute. Company policy mandating that employees spend a certain amount of time in the field is not, however, determinative in whether an employee will be classified as an outside sales person, unless those policies are enforced. For instance, even if employees are told they must spend a certain amount of time doing work in the field, if they are given more in-office work and/or the reality of their job assignments doesn't match up to that required time out, then they will not fall within the definition of exempt workers.

The Importance of Classifying Employees Correctly

As an employer, it is essential that you classify all employees correctly. Applying either a manager exception or an outside sales exception inappropriately can result in significant legal liability, including action on the part of your state's department of labor or a wage-and-hour lawsuit brought by the individuals who lost out on required payment. For more information, visit: 1. “AT&T Wins Overtime Lawsuit” 2. “Federal Employees and the Fair Labor Standards Act” 3. “Wages and Hours Worked: Minimum Wage and Overtime Pay” 4. “Connecticut Department of Labor: Exempt/Nonexempt Employees for the Purposes of Wage and Hour Laws” 5. “Connecticut Department of Labor: Salary Test for Determining Exempt/Nonexempt Status of Employees” 6. “Ramirez v. Yosemite Water Co.” 7. “Has an Increase in the Incidence of Labor Abuses Accompanied the Recession?” The Small Business Authority cannot and does not give legal or tax advice and nothing contained in this article should be construed as such. Before taking any actions based on this or any other article published by The Small Business Authority, we strongly advise you to consult with an attorney and/or your tax professional.