What Do You Mean She Is Entitled to Overtime? She Is A Manager!

by Brent R. Pohlman, Mandelbaum Barrett PC

Like many shops, you probably have employees with titles like general manager, production manager, operations manager, office manager, office administrator and parts department manager.

It’s often assumed that employees with manager or administrator titles can be classified as “exempt” from overtime; however, a title alone is not sufficient to satisfy the overtime exemption standards. Now – more than ever – this is an issue because, over the past two years, we have seen increased enforcement by the United States Department of Labor (USDOL) and the New Jersey Department of Labor (NJDOL) with respect to the misclassification of employees as overtime exempt. 

If an employee is misclassified as exempt and only paid a flat salary for all work performed, the employer risks exposure to significant liability. Of course, this excludes technicians who are on a flat rate compensation plan. Misclassification is a violation of the Fair Labor Standards Act (FLSA) and the New Jersey Wage and Hour Law (NJWHL). The employer will have to pay the employee for any unpaid regular hours, as well as any unpaid overtime, plus a liquidated damages penalty to the employee up to 200 percent of the unpaid wages. If the claim is brought by an employee through private counsel, the employer can expect to have to pay the employee’s legal fees, as well. In addition to requiring the payment of the wages, the NJDOL can levy a fine up to $1,000, plus an administrative penalty of up to 20 percent of the wages owed. 

Given this significant financial risk, it is important to ensure that your employees are properly classified. Let’s begin by discussing the criteria for overtime exemption and applicable exemption categories. First, to be exempt, an employee must be compensated on a salary basis and paid no less than $684 per week. The USDOL has proposed a new rule that would increase the minimum salary threshold to $1,059 per week. If this rule is adopted, it would go into effect at some point in 2024. Second, the employee must be paid their salary in full in any week the employee performs work, regardless of how many hours the employee works. There are some limited exceptions to this, such as being absent without permission or using sick or vacation time above what the employee has accrued or been provided. 

Next, we move on to the exemption categories or what is known as the “duties” tests that would be applicable to an automobile repair shop. 

The first exemption category is “Executive Exemption.” To qualify for the executive employee exemption, the worker must perform the following duties:

(i) The employee’s primary duty must be managing the enterprise or managing a customarily recognized department or subdivision of the enterprise;

(ii) The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent, and

(iii) The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Unless you operate a larger shop, there will likely only be one or two employees that can be classified as executive exempt; those employees typically are a general manager/production manager and the office manager, depending on the scope of his/her authority. 

The second applicable exemption category is “Administrative Exemption.” To qualify for the administrative employee exemption, the worker must perform the following duties:

(i) The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

(ii) The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

The first prong of this administrative exemption test is straightforward; however, it is the second prong where employers often try to include an employee who may not be eligible. The exercise of discretion and independent judgment implies that the employee has authority to make an independent choice, free from immediate direction or supervision; however, employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level. Thus, the term “discretion and independent judgment” does not require that the decisions made by an employee have a finality that goes with unlimited authority and a complete absence of review. The decisions made as a result of the exercise of discretion and independent judgment may consist of recommendations for action rather than the actual taking of action.

Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include but are not limited to: 

  whether the employee has authority to formulate, affect, interpret or implement management policies or operating practices; 

  whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree; 

  whether the employee has authority to commit the employer in matters that have significant financial impact; 

  whether the employee has authority to waive or deviate from established policies and procedures without prior approval; 

  whether the employee has authority to negotiate and bind the company on significant matters; and 

  whether the employee investigates and resolves matters of significance on behalf of management. 

Satisfying one or two of these factors is not dispositive; the NJDOL or a reviewing court is going to look at the totality of the employee’s responsibilities and authority. Generally, clerks and bookkeepers will not satisfy the administrative exemption. With respect to the other positions within the shop, estimators and client/customer relations employees will generally not be exempt; however, a parts manager can be exempt, depending how many employees she/he manages and the discretion and independent authority that employee has with respect to the operation of the department. 

In order to ensure that your employees are properly classified, we recommend creating and maintaining job descriptions that accurately reflect the specific job duties and responsibilities of each position. This will assist you in determining whether the employee satisfies the examination standards. For non-exempt employees, even if they are paid on a salary basis, the employer must maintain an accurate record of all hours worked and pay those employees an overtime premium for all hours worked that exceed 40 hours per week. Of course, if you have any questions, you should always contact an attorney experienced in wage and hour compliance law. 

Brent R. Pohlman is a partner in the labor and employment practice group at Mandelbaum Barrett PC, based in Roseland, NJ. Contact him via email at bpohlman@mblawfirm.com.

Want more? Check out the June 2024 issue of New Jersey Automotive!