It is a common myth that employees classified by their employers as “executives” or “professionals” are automatically exempt from overtime. The real question is whether the employee must have certain powers and spend their time supervising people. Among other powers, an executive must have the ability to hire and fire, and a professional must have advanced knowledge in a field of science or learning. President Obama will seek a stricter enforcement of these rules to ensure that to be classified as exempt the employee must be performing “executive” or “professional” duties 100% of the time. Furthermore, executives currently must make at least $455 a week to be exempt from overtime. President Obama seeks to raise the threshold to $984 a week, according to the New York Times.

So, hiding employees behind a title will be much harder to do. Just because an employee is identified as an “executive” or “professional” does not make them exempt from overtime pay. This is great news for employees who have been unfairly misclassified as executives by businesses to strategically avoid paying them overtime.

The plaintiff stockbrokers and advisors involved in these actions alleged that they were falsely classified as “administrative” employees, exempt from overtime pay requirements pursuant to the so-called “white collar” exemptions from the Fair Labor Standards Act. The administrative exemption is available for employees who are:

1. salaried, at a rate of no less than $455.00 per week;
2. primarily engaged in “the performance of office or non-manual work directly related to the management or general business operations of the employer or [its] customers”; and
3. able to exercise “discretion and independent judgment with respect to matters of significance” in the fulfillment of their primary activities.

Plaintiffs asserted that their duties made them internal salespeople, and that they were unable to exercise the degree of discretion and independent judgment required under the exemptions.

Each of the firms involved in these settlements continue to maintain that employees were exempt. The remaining cases, or future actions, may provide guidance regarding the proper classification of stockbrokers, financial advisors and similar employees.

Section 13 (a)(1) of the FLSA generally requires that all employees earn at least the federal minimum wage (currently $5.15 per hour) and overtime pay of time-and-one-half for more than 40 hours worked per week. So-called “white collar” exemptions remove employees classified as “executive,” “administrative,” “professional,” “outside sales” or “computer employees” from FLSA coverage. A summary of the first three of these categories are set forth below.

The big news with the new regulations is that the salary basis is increased to $455 per week (from $155 and $250 per week under the old tests), and the “long test” and “short test” have been replaced with a “standard duties” test. By eliminating the long test, the general 20% rule has been revised upward so that now an exempt employee’s “primary” duty must be spent performing the exempt work. There are also special rules for individuals making in excess of $100,000 per year.

For the “Executive Exemption,” the job duties have been revised so that executives must do more than just supervise, they must have actual authority to hire or fire or their recommendations must be given “particular weight.” This seems to eliminate the exemption for many so-called assistant managers.

The new tests are set forth below.

“Executive” employees must:

1. be salaried, at a rate of no less than $455.00 per week;
2. be primarily engaged in management-related activities; and
3. be involved in the supervision of two or more other employees on a regular basis, including either the ability to hire and fire or to make recommendations concerning employees’ advancement or termination.

“Administrative” employees must:

1. be salaried, at a rate of no less than $455.00 per week;
2. be primarily engaged in “the performance of office or non-manual work directly related to the management or general business operations of the employer or [its] customers”; and
3. be able to exercise “discretion and independent judgment with respect to matters of significance” in the fulfillment of their primary activities.

“Professional” employees must:

1. be salaried, at a rate of no less than $455.00 per week; and
2. be primarily engaged in activities requiring “knowledge of an advanced type [predominantly intellectual in character and requiring a consistent exercise of discretion and judgment] in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction”; or
3. be primarily engaged in “the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”