DOL Wage and Hour Audits on the Rise: Reduce Employer Liability by Properly Classifying Employees as Exempt or Non-Exempt

With wage and hour audits on the rise, it is important to ensure that your dealership complies with federal and state wage and hour laws before an investigator walks through your door (sometimes unannounced). During a wage and hour audit, the investigator will gather information related to wages, hours, meal breaks, and other employment conditions. Additionally, the investigator will determine whether each employee is properly categorized as “exempt” or “non-exempt” under the Fair Labor Standards Act (“FLSA”).

As an employer, you should conduct a self-audit to ensure that employees are properly classified as exempt or non-exempt, especially in light of any reassignments of duties that might have occurred during the COVID-19 pandemic. An employee should be considered “non-exempt,” unless the employee qualifies for certain statutory exemptions under the FLSA. The common statutory exemptions include:

1. Administrative Employees;
2. Executive Employees;
3. Professional Employees;
4. Computer Professionals;
5. Outside Sales Employees; and
6. Highly Compensated Employees.

At first glance, it may appear that an employee could easily satisfy one of the common statutory exemptions. For example, it would seem that an employee with the job title of “Administrative Assistant” should qualify for the “Administrative Employee” exemption. However, the determination of whether an employee qualifies as “exempt” is not so simple and requires a more thorough examination.

To qualify for “exempt” status under one of the common statutory exemptions, an employee must satisfy the following criteria:

1. The “Salary Basis Requirement”: To satisfy the Salary Basis Requirement, an employer must:
   • Pay the employee a predetermined salary (rather than an hourly rate) each pay period, which is not reduced based upon the quality or quantity of work performed; and
   • The predetermined salary must satisfy the “predetermined salary threshold” set by the DOL, which, as of the time of writing is $684/week.
2. The “Duties Test”: The DOL often refers to the second factor as the “Duties Test.”  To satisfy the Duties Test, the employee must perform certain duties and responsibilities in his/her position.  The duties and responsibilities that must be performed are specific to each exemption.  For more information on specific duties and responsibilities, click here.

An employee who satisfies the criteria listed above may be classified as “exempt” and would therefore not be subject to the FLSA minimum wage and overtime requirements. The FLSA also provides an exemption (from overtime provisions only) for certain salesmen, partsmen, and mechanics who are employees of dealerships primarily engaged in selling farm implements. However, the test to determine whether this exemption applies depends on the dealership’s annual dollar volume derived from sales of farm implements and the amount of time the respective employee spends selling and/or servicing farm implements. The analysis to determine whether an employee is “exempt” from such requirements is often fact intensive. We recommend seeking advice of counsel to confirm the “exempt” and “non-exempt” status for each employee, which will help reduce the risk of liability for your business.