One of the most costly mistakes a fashion business can make is to misclassify an employee as overtime exempt regardless of the employee’s duties and functions. That creates the risk of substantial liability under both federal and state law.
The Federal Fair Labor Standards Act provides for several basic overtime exemptions. These include the executive, professional and administrative exemptions and are commonly referred to as “white collar” exemptions.
To be exempt from overtime pay, an employee must be paid a fixed salary regardless of hours worked of at least $455 per week ($23,660 per year) under federal law, and more than twice that amount under New York State Labor Law, and must have duties and functions that fall within the applicable duties test.
Executive Exemption Duties Requirements
To qualify as an exempt executive (high-level manager), an employee’s primary duties must relate to managing a business or a department within a business. The employee must regularly supervise at least two full-time employees or the equivalent in part-time employees, and must have the authority to hire, fire and discipline employees, or effectively to recommend such action. Secondary tests include interviewing and training employees, and assigning and directing their work. Typically, this exemption would attach to store and departmental managers.
Administrative Exemption Duties Requirements
To qualify as an exempt administrative employee, the employee’s primary duties must consist of the performance of office or non-manual work directly related to management policies or general business operations, including customarily and regularly exercising discretion and independent judgment involving the comparison and evaluation of alternative courses of conduct and making decisions, after consideration of the various possibilities, free from immediate direction or supervision.
Duties may relate to taxes, 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, and legal and regulatory compliance.
Factors may include whether the employee formulates, affects, interprets, or implements policies or practices, whether the employee may commit the employer in matters having significant financial impact, and whether the employee has authority to waive or deviate from established company policies and procedures without prior approval.
Professional Exemption Duties Requirements
An exempt professional employee is one who falls under the definition of either a “learned professional” or a “creative professional.” Learned professionals work in professions typically requiring an advanced degree (college or higher) and a prolonged course of specialized intellectual instruction such as law, medicine, accounting, engineering, teaching, or architecture. Primary duties must be intellectual and involve the regular use of discretion and independent judgment.
Creative professionals in the fashion industry include, among others, fashion designers, fashion stylists, textile designers, fashion public relations, fashion writers, fashion illustrators, garment technologists, graphic designers and artists, creative employees who are given only a subject matter or underlying concept of what they will create, and individuals who plan and direct the creative elements of new fashion and their advertising agencies. These individuals’ primary duty is performing work that requires invention, imagination, originality or talent, as distinguishable from work dependent merely on intelligence, diligence, and accuracy. Examples of non-exempt work in fashion include fabric cutters, sizers, copyists, re-touchers of photographs, and rewriters of press releases or advertising copy, and general fashion industry employees whose work is subject to substantial control.
In Part Two, we will review in detail the New York State salary thresholds for overtime exemption.
Evan is a senior counsel in the Employment & Labor Law Practice.