What is the administrative exemption to overtime pay?
The Fair Labor Standards Act, passed in 1938, requires employers to pay their employers one a half times their regular rate for any hours worked past 40 hours per week. However, this overtime rule does not apply to every employer and employee.
First, the FLSA only covers employees and not independent contractors. Under the FLSA, employees are those workers who are economically dependent on their employers. Second, the Act only covers employers who have workers that are engaged in or affecting interstate commerce. The interstate commerce requirement is interpreted very broadly and includes most employees.
Lastly, for an employee to receive protection from the FLSA and entitle him to overtime pay he must not be an exempt employee. The FLSA exempts employees who occupy certain positions. Among these exemptions is the administrative exemption.
The administrative applies if the employee is paid a salary or fee of at least $913 per week of $47,476 per year, the employee’s primary duty is to perform office work directly related to the employer’s management or general business operations, and the employee exercises discretion and independent judgment in performing his duty.
Administrative tasks must be the employee’s primary duty—that is, it is the principal, main, major, or most important duty that the employee performs. It does not mean that to be exempt the employee must only perform administrative tasks, but that the character of his job as a whole is administrative. Generally, an employee who spends more than half his time performing administrative duties will be exempt.
For example, an employee who spends more time performing administrative work, is paid more than other employees doing non-exempt work, is relatively free from supervision, and who has more importance placed on his administrative duties can be said to have that as his primary duty. If he meets the other requirements, he will be exempt from overtime.
The employee’s work must also be directly related to management or general business operations. This work is not working on a production line or selling a product, but is work that is directly related to assisting with running or servicing the business. Examples include working in areas such as tax, finance, accounting, research, personnel management, human resources, purchasing, and legal and regulatory compliance.
In performing these administrative tasks as his primary duty, the employee must exercise discretion and independent judgment. The employee must have the authority to make an independent choice, free from immediate supervision and procedures described in employee manuals. Generally, an employee falling under the administrative exemption has the task of evaluating and choosing between different courses of action.
For example, an employee that has the power to implement management policies or operating practices and plan long-term business objectives would fall under this exemption. Similarly, an employee that has the power to negotiate and bind his employer on important business matters and represents his employer in handling complaints would fall under this exemption.
For educational establishments, the employee’s primary administrative duty must be directly related to academic instruction or training. For example, school superintendents, principals and vice-principals, and college department heads fall under this exemption.