HR Solutions: Judicious use of exempt status can reduce payroll

Lynne Haggerman is president/owner of Haggerman & Associates, an employment, management training, human resources consulting and outplacement firm.

A company may be increasing payroll expenses unnecessarily due to an unfamiliarity with the Fair Labor Standards Act. One of the primary overpayments involves classifying exempt positions as nonexempt.

Exempt jobs are not subject to payment of minimum wage and overtime. The law provides short and long tests. It is permissible to claim exempt if the organization is able to answer "yes" to each question in the short test, based upon the job description and pay rate.

A long test is available if the enterprise is unable to respond positively to the short test. As with the short test, all questions on the long test must be affirmative.

A classification of executive is the first exempt category. The short test consists of two inquires. Is the employee guaranteed a salary of at least $250 per week, paid on a salary versus hourly basis? Does the manager supervise at least two staff and spend at least 50 percent of his work time in the management of a department?

The executive long test encompasses six issues. Is the supervisor guaranteed at least $155 per week remitted on a salary basis? Do the primary duties of the position entail managing a department? Does the executive supervise at least two associates? Does he have the authority to perform all personnel functions from selection to termination, or is he able to provide recommendations? Does he regularly exercise discretion and independent judgment? Is at least 80 percent of his time spent on management duties? In a retail or service establishment, 60 percent is the criteria.

The second exempt classification is professional. The short test includes three questions.

Is the team member guaranteed at least $250 per week paid on a salary basis? Does his primary work require advanced knowledge or prolonged courses; is he involved in an artistic endeavor requiring invention or imagination, or is he a teacher? Does he habitually use discretion and independent judgment?

The long test contains five queries. Three are similar to the short test, except the salary requirement is $170.

Is the work he performs mainly intellectual and the results not easily standardized? Does he devote no more than 20 percent of his hours to activities not an essential part of his job?

The third exempt class is outside sales. Does he routinely work away from the business in making sales or obtaining orders? Does he spend less than 20 percent of his hours performing duties other than sales? This exemption does not apply to a sales representative in training and not fulfilling the duties of a salesperson.

The fourth exempt category is administration. The short test includes two issues. Is the staff member paid at least $250 per week on a salary basis? Does he regularly apply discretion and independent judgment?

The long test consists of five questions. Does he receive at least $155 per week on a salary basis? Is the primary duty to render office work related to management policies or the general business operations, does the employee work in a school system or does he regularly utilize discretion and independent judgment? Does he customarily assist the proprietor or an executive? Does he work in specialized or technical lines requiring training or experience? Does he execute special assignments under only general supervision? Does he devote less than 20 percent of his hours to activities not related to exempt duties? In a retail or service establishment, it is 40 percent.

The fifth category is computer professionals and covers computer systems analysts, computer programmers, software engineers and other similarly skilled workers.

The specific job duties considered exempt are numerous and detailed in the law. The individual must be paid at least $27.63 per hour.

Companies mistakenly classify exempt positions as nonexempt and end up paying more payroll dollars than required by the law.

Conduct an audit of your job descriptions and begin reaping the savings.