Overtime Pay Update

Under the federal Fair Labor Standards Act (FLSA), employers must pay an employee an overtime rate of at least one and one‑half times the regular pay rate for any hours in excess of 40 hours a week. There are exemptions from this requirement for several types of employees, including employees in executive, administrative, or professional capacities.

Two recent decisions by federal appellate courts illustrate the fine distinctions that are sometimes made between employees who are deemed entitled to overtime and those who are not because they are employed in an “administrative” capacity.

Under the FLSA and its regulations, an employee earning at least a threshold amount per week is an administrative employee if his or her primary duties consist of the performance of office or nonmanual work directly related to the management policies or general business operations of the employer or the employer’s customers and if the work requires the exercise of discretion and independent judgment.

Insurance Adjusters Exempt

In the first case, the primary duty of an insurance company’s automobile damage adjusters consisted of the assessment, negotiation, and settlement of automobile damage claims, making the adjusters exempt from the FLSA overtime pay provision. The fact that the adjusters engaged in total‑loss negotiations 20 times per year demonstrated that their duty included the exercise of discretion and independent judgment.

The adjusters also worked in the absence of immediate supervision the majority of the time and made decisions that were reviewed only after the estimate had been written and the claim had been paid. They had full authority to settle claims within their limits of $10,000 or $15,000, as long as they could justify their decision on the facts of each claim, thereby binding their employer financially.

Saleswoman Entitled to OT

By contrast, in the second case, an advertising saleswoman for a magazine publisher, who was also compensated weekly above the threshold amount, was not an “administrative employee” for the purposes of the FLSA, and thus was entitled to overtime pay.

The employer pointed out that the employee’s responsibilities included developing new clients, with the goal of increasing sales generally, and that this task concerned general management and business operations. That was true as far as it went, but the fact remained that the employee’s primary duty, meaning the duty that consumed a major part, or over 50%, of her time, was simply to sell specific advertising space to clients. Since, in the court’s view, the employee was “plainly a salesperson,” she had to receive overtime pay whenever it was earned.

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