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Editor s note: The following is a hypothetical case study , with fictional managers and fictional businesses, that provide a way for executives to learn more about some of the situations they or their companies may face. Executive Legal Adviser reporter Jeanne Graham wrote the hypotheticals, and legal experts familiar with the kinds of problems described offered suggestions to remedy the situations. Their opinions are not intended to be legal advice. Sam Greene just finished 19 rounds of golf at a local chamber of commerce fund-raiser. But it’s not the heat that has him sweating. One of the members of his foursome shared a horror story about employees joining in a class action suit demanding back pay for working overtime. Greene thinks that his employees — computer system support technicians — are professionals exempt from federal overtime regulations. But he wants to be sure. Greene’s company sells and services technology systems — computers, servers, printers and other computer peripherals — to small and medium-sized businesses. Greene employs 1,300 technicians throughout the state of Texas who function as both sales staff and repair and maintenance staff. Though they are not engineers, most of the technicians have received post-high school training at a junior college or technical or vocational school. The technicians receive base pay, determined by their regional managers, ranging from $900 per month in Brownsville, Texas to $1,500 per month in Dallas. Additionally, each technician receives a monthly bonus based on the number of customer calls completed during the month and a monthly commission based on the dollar value of any upgraded or added-on equipment sold to customers during the month. The company motto is “get the job done.” If a technician arrives on a site at 4:30 p.m. on a Friday, he or she is expected to stay until the customer’s problem is solved. Last month, the individual payroll checks — base pay, plus bonus and commission — ranged from $1,200 to $5,500. All technicians are expected to work 40-hour weeks. Greene knows that many exceed that amount. Does he owe overtime pay to technicians who work more than 40 hours per week? Should Greene consider restructuring the technician compensation plan to avoid potential overtime issues? ANSWER NO. 1 by Barham Lewis a nd Lenore Espinosa The first question is whether Greene owes overtime pay to computer support technicians who work more than 40 hours per week. Under the Fair Labor Standards Act (FLSA), non-exempt employees are entitled to overtime premium pay at time and one-half of the employee’s regular rate of pay for all hours worked in excess of 40 hours per week. If the computer technicians are classified under one of the FLSA’s recognized overtime exemptions, then they may not be entitled to overtime compensation. The FLSA includes overtime exemptions that apply to: 1. white-collar employees; 2. outside sales employees; and 3. computer employees. The white-collar exemptions apply to employees earning a minimum salary level of $455 per week. To meet the white-collar exemption, the technicians would have to be classified as executive, administrative or professional employees. This means the technicians would have to meet a duties test to be considered exempt. Executive duties involve managing the enterprise or a customarily recognized department or subdivision of the enterprise; executives also have the authority to hire, fire and direct the work of two or more full-time employees. Administrative employees perform office or nonmanual work requiring the exercise of discretion and independent judgment directly related to the managerial business function of the company or its customers. Professional employees are categorized as either learned or creative. Learned professionals require advanced knowledge in a field of science or learning that is customarily acquired by courses of specialized intellectual instruction. Work performed cannot be routine mental, manual or physical work. Greene’s computer technicians do not appear to have the background or perform the type of work necessary to meet the white-collar exemptions. Greene’s computer technicians perform sales and may qualify under the outside sales exemption. To qualify, the employee must perform sales outside or away from the employer’s place of business. If Greene’s employees sell technology systems outside of Greene’s place of business as a primary duty, they may be exempt from receiving overtime compensation. Under the FLSA, computer-skilled employees are exempt if their primary duties include: applying systems analysis techniques; consulting with users to determine hardware, software or system functional specifications; design, development, documentation, analysis, creation, testing or modifications of computer systems or programs, including prototypes, based on and related to user or system design specifications; design, documentation, testing, creation or modification of computer programs related to machine operating systems; or a combination of the above referenced duties provided that the performance includes the same level of skills. Computer employees are not generally exempt if their primary duty is to manufacture or repair computer hardware and related equipment. The second question is whether Greene should consider restructuring the computer technician compensation plan to avoid potential overtime issues. Unless the technicians meet one of the FLSA overtime exemptions, an employer’s compensation plan must provide a method to compensate non-exempt employees working in excess of 40 hours per week. So, Greene may restructure the technician’s duties to carve out certain duties, such as outside sales, which may be exempt from the FLSA overtime requirements. Also, he may reclassify some or all of the technicians into two categories: non-exempt employees performing computer repair work and exempt employees performing computer-analysis techniques. Greene also has a few compensation plan options for those employees entitled to overtime. He may adopt a fluctuating workweek plan. Under this plan, employees are paid a fixed weekly salary, even if they work fewer or more than 40 hours, as straight time for all hours worked. The employee will receive one-half the regular hourly rate of pay for hours worked in excess of 40 per week. Also, Greene could implement a day-rate or job-rate compensation system. Under this practice, an employee is paid a flat sum for a day’s work or for doing a specific job without regard to the number of hours worked in the day or at the job. The employee is then entitled to overtime for hours worked in excess of 40 per week at one-half the regular hourly rate of pay. Greene could also follow the general rule for paying overtime to non-exempt employees and pay an hourly straight-time rate and overtime at a rate not less than one-and-a-half times the employee’s regular rate of pay. Finally, Greene needs to maintain accurate employee payroll records indicating the amount of hours each non-exempt employee works and the amount of regular and overtime pay the employee receives. By properly recording all hours worked and paid, Greene will be better equipped to defend a potential overtime compensation claim. ANSWER NO. 2 by Mark R. Flora Although Greene is wrong in thinking that his employees are professionals under the Fair Labor Standards Act, all is not lost, and he need not put his country club membership up for sale quite yet. The FLSA contains what are called the white-collar exemptions to determine who is exempt from the FLSA’s minimum wage and overtime requirements. In addition, certain outside salespersons and highly compensated employees are also exempt. Most of the exemptions are conditioned upon satisfying two criteria generally related to the manner in which employees are compensated, the salary test, and the duties test based on the employees’ job responsibilities. Both criteria must be met before the employer is free from his obligation to pay overtime for hours worked over 40 each week. The regulations interpreting and defining the white-collar exemptions were revised in 2004. The regulations now require that to be exempt under either the executive, administrative or professional exemptions, employees must be paid a fixed sum of at least $455 per week on a salary basis. Salary basis simply means that the base salary cannot be reduced due to variations in the quality or quantity of work, although the existence of additional commissions and/or bonus payments does not defeat salary basis. Computer professionals, who were added to the professional exemption by amendment to the act in 1990, alternatively can be paid on an hourly basis at a rate not less than $27.63 an hour. Because Greene’s employees do not meet the salary test, they are not exempt under the computer professional exemption. It is also worth noting that Greene’s employees do not meet the duties test for computer professionals. Generally, computer professionals are exempt if they are highly skilled in computer system analysis, programming or related work in software functions or development. The exemptions specifically do not apply to employees whose primary duties are to sell, manufacture, repair or maintain computer hardware. With many of his employees apparently working more than 40 hours per week, with nondiscretionary bonuses and commissions includable in the regular rate to determine overtime pay, and with two or possibly three years of liability and liquidated damages, why shouldn’t Greene stay at the 19th hole drowning his sorrows while trying to find someone to buy his membership? Because, although not exempt as computer professionals under the FLSA, Greene’s employees may be exempt under the outside sales exemption, which uniquely has no minimum salary test. Greene should be thankful that job titles alone are not determinative of exempt status for his computer system support technicians. The duties test for the outside sales exemption requires that employees have the primary duty of making sales or obtaining orders or contracts for services or the use of facilities, and be customarily and regularly engaged away from the employer’s place of business. Notwithstanding their job titles, the primary duty of some or all of Greene’s employees may be to sell technology systems — computers, servers, printers and peripherals — to a designated market. The employees receive a monthly bonus based upon the number of customer sales calls made each month. They also receive a monthly commission based upon the dollar value of upgrades or add-ons sold during the month. An important distinction is that Greene’s employees do not sell a service; they sell computer systems and then furnish necessary services incidental to the sale of the systems. Certainly Greene’s employees are customarily and regularly engaged away from Greene’s primary place of business. Does Greene have an overtime problem or are his employees exempt under the outside sales employee exemption? Due to the fact-intensive nature of FLSA determinations, the answer depends entirely on the actual day-to-day job duties of the employees. However, rather than immediately selling his country club membership, Greene should: 1. do, or have done, a detailed job function analysis; 2. prepare an accurate job description for his computer system support technicians describing the primary sales function and the necessary incidental support performed, if appropriate; 3. re-name the positions as sales technicians, if appropriate; and 4. create a separate class of non-exempt service technicians paid on an hourly basis in the event that he determines it necessary to solidify the exempt status of his re-named sales technicians. In the world of FLSA exemptions, there are no guarantees. Taking the suggested limited corrective action should allow Greene to continue to run his business in the manner that he has chosen.

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