Administrative Exemption

Under the administrative exemption, “bona fide administrative employees” are exempt from the FLSA’s protections. The FLSA’s administrative exemption applies to an employee: 

  • who is paid on a salary or fee basis at a rate of at least $455 per week;
  • whose primary job duty is to perform office work or other non-manual work directly related to the management or general business operations of their employer or their employer’s customers; and
  • whose primary job duty requires that the employee exercise discretion and independent judgment with respect to matters of significance.

Salary or Fee Basis Requirement

Subject to a list of exceptions, an employee is compensated on a “salary basis” if they receive on a weekly basis or less-frequent basis, a predetermined amount constituting all or part of their compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. 

Primary Duty Requirement

The administrative exemption applies to employees who work in an office and do not perform manual labor. Thus, the administrative exemption does not apply to production-line workers; maintenance workers; construction workers; and employees in similar occupations who perform work involving repetitive operations with their hands, physical skill, and energy.

According to the Department of Labor, work related to the following areas or departments may qualify as administrative work:

  • tax,
  • finance,
  • accounting, 
  • budgeting,
  • auditing, 
  • insurance, 
  • quality control, 
  • purchasing, 
  • procurement,
  • advertising, 
  • marketing, 
  • research, 
  • safety and health, 
  • personnel management, 
  • human resources,
  • employee benefits, 
  • labor relations, 
  • public relations, 
  • government relations, 
  • computer network,
  • internet and database administration, 
  • legal and regulatory compliance, and 
  • similar activities. 

Courts have noted that determining whether the administrative exemption applies is not as simple as a drawing the line between white-collar and blue-collar employees. Rather, the distinction is between those employees whose primary duty is administering the business affairs of the enterprise from those whose primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce and market. 

In many cases, employees are responsible for performing both exempt administrative duties as well as non-exempt duties. To determine whether the exempt duties qualify as the employee’s “primary duty” under the FLSA, courts look to a set of factors that include, but are not limited to, 

  • the relative importance of the exempt duties as compared with other types of duties; 
  • the amount of time spent performing exempt work; 
  • the employee’s relative freedom from direct supervision; and 
  • the relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee. 

Although time alone is not the only test, employees who spend more than 50 percent of their time performing exempt work will generally satisfy the primary duty requirement.

Discretion and Independent Judgment Requirement

Finally, the administrative exemption does not apply unless the employee in question exercises discretion and independent judgment as to matters of significance to the employer’s business in carrying out their primary job duty. In determining whether this requirement is met, a variety of factors must be considered, including whether the employee:

  • has authority to formulate, affect, interpret, or implement management policies or operating practices;
  • carries out major assignments in conducting the operations of the business;
  • whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business;
  • has authority to commit the employer in matters that have significant financial impact;
  • has authority to waive or deviate from established policies and procedures without prior approval;
  • has authority to negotiate and bind the company on significant matters; 
  • provides consultation or expert advice to management; 
  • is involved in planning long- or short-term business objectives;
  • investigates, and resolves matters of significance on behalf of management; and 
  • represents the company in handling complaints, arbitrating disputes, or resolving grievances.

Cases Involving the FLSA’s Administrative Exemption

In Ale v. TVA, an employer argued that it did not have to pay overtime wages to a group of employees who held various positions, including security shift lieutenants, shift supervisors, a training officer, and a programs and procedures specialist. 269 F.3d 680 (6th Cir. 2001). The employer argued, among other things, that these employees fell within the FLSA’s administrative exemption because they exercised “discretion and independent judgment.” The employer pointed out that the resume of one of the employees stated that he was “solely responsible” for training security officers and updating lesson plans to comply with “Administrative Orders” issued by management. The court rejected this argument because the record did not contain any evidence to suggest that these job duties required the exercise of discretion and independent judgment rather than following orders in performing these duties. 

The employer further argued that the employees were exempt administrators because their resumes and job applications stated that they “directed the security activities of assigned uniformed security personnel within the security shift operations.” The court rejected this argument because “this description does not prove that these employees were exempt from the FLSA because the term ‘direct’ does not specifically describe the actual nature of the lieutenants’ relationship to the security personnel.” Furthermore, the court noted that “the lieutenants’ decisions were so closely prescribed by [Administrative Orders] and other guidelines that they did not exercise independent judgement” and, “[a]lthough they may have had the authority to allow a sick officer to man a post near the bathroom, decisions such as these do not qualify the lieutenants as administrators because they do not involve ‘matters of significance.’” As such, the court held that the employees did not qualify for the FLSA’s administrative exemption and were therefore entitled to overtime pay. 

The following is a list of similar cases in which courts addressed the FLSA’s administrative exemption: 

  • Heidtman v. County of El Paso, 171 F.3d 1038, 1041–42 (5th Cir. 1999) (employees of visitor center operated by city and county held nonexempt).
  • Blanchar v. Standard Ins. Co., 736 F.3d 753, 758–59 (7th Cir. 2013) (product manager qualified for administrative exemption despite lack of final authority).
  • Hines v. State Room, Inc., 665 F.3d 235, 245–246 (1st Cir. 2011) (banquet sales managers who submitted proposals to management for approval were exempt administrative employees based on the level of judgment exercised in arriving at the proposal).
  • McAllister v. Transamerica Occidental Life Insurance Co., 325 F.3d 997, 1000–02 (8th Cir. 2003) (insurance claims coordinator held exempt).

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