Are You an Executive Exempt from Unpaid Overtime in Texas?

As a general rule, Texas employees are entitled to overtime pay unless they qualify for one of the narrow exemptions under the Fair Labor Standards Act, or FLSA.  One of the most frequently litigated overtime pay exemptions under the FLSA is the executive exemption. Managers and other mid-level salaried employees are often misclassified as “executives” so that they do not receive overtime pay. This article will analyze the elements that must be met to satisfy this overtime pay exemption.

To be exempt as an executive from the overtime pay requirements of the FLSA, an employee must meet the criteria of either the “standard test” or the “highly compensated employee test.” The standard test must be used if the employee receives a total annual compensation of less than $100,000. Under the standard test, an employee must satisfy all of the following four elements to qualify for the executive unpaid overtime exemption:

1. The employee must be compensated on a salary basis (as defined in the FLSA regulations) at a rate not less than $455 per week;
2. The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;  What does this mean? The Department of Labor has enacted guidelines designed to help clarify when an employee’s “primary duty” involves “managing the enterprise.” These regulations stress the importance of the amount of time spent performing “managerial” duties as opposed to manual work, the employee’s freedom and discretion in performing his duties, and the disparity between the employee’s wages and that of other, nonexempt workers performing similar work to that of the employee. Court decisions have varied widely on this element. In Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233 (11th Cir. 2008), the Eleventh Circuit Court of Appeals held that store managers, which typically spent only 10 to 20 percent of their time on exempt work and the remainder of their time doing manual labor were not exempt as executives, and thus were entitled to overtime pay. Other cases have held that employees that spent substantially more time than the managers in Morgan performing manual work were nonetheless exempt and thus not entitled to overtime pay. See, e.g., In re Family Dollar FLSA Litigation, 637 F.3d 508 (4th Cir. 2011).
3. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; What does this mean? Generally, an exempt executive must supervise a total of 80 employee-hours per week. This means that the employee could supervise two full-time employees, or some combination of part-time employees that work a total of at least 80 hours per week. Hours worked by a particular employee cannot be credited to more than one exempt executive. 29 C.F.R. § 541.104(d).
4. 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.  What does this mean? If the employee is allowed to hire or fire other employees, this element is satisfied. If not, the test is more complicated. The Department of Labor’s regulations provide that an employee’s recommendations regarding personnel decisions are considered to be given “particular weight” if the employee’s job duties include making such decisions, the frequency that the employee is asked to make suggestions on personnel decisions, and the frequency that the employee’s personnel recommendations are followed by the employer.

An employee making more than $100,000 per year need only satisfy one of the last three elements set forth above to qualify for the executive exemption.

As this post demonstrates, there is considerable gray area when determining whether an employee qualifies as an executive that is exempt from overtime pay. Unfortunately, this gray area often results in managers and other salaried employees being mistakenly misclassified as exempt from overtime pay, costing these employees thousands of dollars in overtime pay.

About the Author: I represent individuals in a variety of matters, including employment claims for lost wages.  While my office is located in Fort Worth, I am admitted to practice in every state and federal court in Texas, and I am able handle unpaid overtime cases in Dallas, Fort Worth, Denton, Houston, Waco, Austin, San Antonio, and across Texas.  If you believe you may be owed unpaid overtime, call me at 817.908.9861 or fill out my contact form for a free evaluation.

Author: Josh Borsellino