The administrative exemption general applies to workers who do office work on the non-production side of a business. This generally means business support roles such as tax, finance, accounting, human resources, public relations, and marketing among others.
To qualify for the administrative employee exemption, all of the following tests must be met:
- The employee must be compensated on a salary or fee basis at a rate not less than $455 per week;
- 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
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
As mentioned above, the administrative exemption requires that the exempt employee do work “directly related to the management or general business operations” of their employer or the customers. This is commonly examined through the lens of production versus administration. This used to be easy when the white collar workers were upstairs doing administrative work and the blue collar guys were down on the floor making the product using huge machines. Nowadays, many companies “make” services like mortgages or consulting where the distinction between the administrators and producers are much finer. Just because you don’t work a machine or you get to sit at a desk doesn’t mean your work is “directly related to the management or general business operations”.
Performing management or general business operations duties is not enough by it self enough to make an employee eligible for the administrative exemption. An employee must also “exercise discretion and independent judgment with respect to matters of significance”. In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after considering the various possibilities. Discretion and independent judgment requires more than following predetermined methods, procedures or techniques. The employee must have the authority to make an independent choice, free from immediate direction or supervision. However, just because an employee’s decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment.
Finally, the law requires the exempt employees duties be performed with respect to matters of significance. Matters of significance usually refer to high level and important decisions. For instance, the power to decide where to buy paper for one copier in the office is probably not enough to meet the threshold for “matters of significance”.
The executive exemption was designe to apply to people who manage and supervise other employees. To be eligible for the executive exemption, one must:
- The employee must be compensated on a salary basis at rate not less than $455 per week;
- The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the company or enterprise;
- The employee must customarily and regularly direct the work of at least two or more other full-time
- employees or their equivalent; and
- 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.
One of the most common issues that comes up under the executive exemption is whether a particular employee’s duties are really management. Generally, “management” includes, but is not limited to, activities such as interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.
Even if an employee does manage other employees, she also needs to have the ability to hire, fire, and promote or discipline other employees. While the employer need not follow the manager’s suggestion every time, but there must be evidence that the manager in question was consulted and their suggestion was at least considered.
Another issue that comes up frequently under the executive exemption is where an employee manages other employees while also performing other non-management duties as part of their work responsibilities. Generally the question is was the employee more “important” to their employer as a manager or as a regular employee. Courts might look at how much supervision the supposed manager was given, and how often they were allowed to make independent managerial decisions free from interference from higher level managers.