Managers are Exempt from Overtime, Right?

Not necessarily. Too many employers think the “manager” title equals overtime exemption. They are wrong. This week the California Labor Commissioner’s Office proudly announced that it issued a $903,084 citation to a fast food franchise owner because the company misclassified its managers as exempt employees. This citation is a harsh reminder that not all managers can be classified as exempt.

The Labor Commissioner’s Office opened an investigation after receiving a complaint about the company and found that 40 managers were misclassified as exempt. The “managers” were performing non-exempt duties for more than one-half of their work hours, and thus, did not meet the requirements for being classified as exempt. This is the classic example of a “working manager” or “working foreman.” While the employee does have the responsibility to manage other employees, they actually spend the majority of their time performing non-managerial duties. Employers must remember that the employee’s title is not determinative, and neither is the fact that an employee has management responsibilities. To be properly classified as exempt the employee must manage two or more other employees and must actually spend more than one-half of his or her time managing. They must also be paid a regular salary that meets the minimum salary test.

Employers should audit and recheck all employee classifications on a regular basis. This is essential because the actual duties performed by an employee may informally change over time and become out of alignment with the original job description. It is also essential because catching a misclassification before the Labor Commissioner or plaintiff’s attorney will likely save thousands to hundreds of thousands of dollars.