Be Aware of Manager Misclassifications

The employment landscape has changed notably since the pandemic, with labor shortages and the threat of a recession as lingering hallmarks. Wage and hour legal risks continue even as a slow but steady return to normalcy looks imminent.

Manager misclassification issues may be litigated under the Fair Labor Standards Act (FLSA), which requires employees be paid the federal hourly minimum wage of $7.25 with overtime pay at one and one-half times the hourly rate for any hours worked over 40 in a workweek. These employees are referred to as non-exempt, meaning they are not exempt from being paid overtime when applicable. An exempt employee is not eligible for overtime because their wage is paid on a salary basis.

Many exemptions exist under FLSA, including those known as white collar exemptions. An executive exemption has several requirements that constitute classification as a manager:

  • The employee must receive a salary of at least $684 per week.
  • The employee’s primary duty must be managing the enterprise or a recognized department or subdivision of the enterprise.
  • The employee must customarily and regularly direct the work of at least two other full-time employees or four part-time employees, with the authority to hire and fire other employees, or have his or her suggestions and recommendations regarding the hiring, firing, promotion or other changes of employment status be given particular weight. Recommendations are part of that employee’s duties as a manager, are done with frequency, and are actually relied upon by the company in making the hiring or termination decision. An occasional suggestion to hire or fire an employee will not suffice.
  • Management includes activities such as interviewing and training employees, setting rates of pay, directing work, handling employee complaints, disciplining employees, planning and controlling the budget, and monitoring or implementing legal compliance measures.

Maintaining day-to-day business operations can be especially challenging for employers facing a difficult labor market. When a manager slips into performing non-exempt tasks, their employer may be at risk of losing the exemption, depending upon the amount of non-exempt work performed, which may result in a payment of back wages and liquidated damages to the employees in the same role/classification.

Employers should pay special attention to the duties the manager is performing. Relying on job descriptions can bring inaccurate classifications if they are outdated. Regular audits of exempt managers’ duties are beneficial to employers because the employer can determine whether the manager is properly classified or whether the employee may need to be converted to a non-exempt employee. Consult your human resources department and corporate legal counsel for further guidance.

This article first appeared in The Journal Record on May 12, 2023, and is reproduced with permission from the publisher.


Practice Area:

Labor & Employment