Technology Team Newsletter: Are Your Computer Employees Exempt from Overtime?July 9, 2010
In April 2010, the Department of Labor ("DOL") announced a new regulatory and enforcement strategy called "Plan/Prevent/Protect". This new strategy leverages DOL resources across the spectrum of DOL worker protection agencies, including the Wage and Hour Division, and will focus on employer compliance with federal wage and hour laws.
Employers are likely to see a nationwide increase in DOL enforcement proceedings and an increase in individual civil actions and class action litigation involving wage and hour claims. This may be particularly true for technology companies that employ large numbers of individuals in computer-related job functions. Many employers assume that, because these employees work independently and use sophisticated computers and equipment, they are exempt from the overtime and minimum wage requirements of state and federal law.
In many cases, the reverse is true. As such, it is critical that employers determine if they are properly applying the professional and administrative exemptions to employees who work in non-management, computer-related jobs. The proper classification of employees as "exempt" or "non-exempt" remains an active battleground in the wage and hour litigation wars.
Under the Fair Labor Standards Act ("FLSA") and state law, the employer bears the burden of proving that an exemption to the overtime and minimum wage rules apply—establishing exempt status is an "affirmative defense" in wage and hour litigation. The "white collar" exemptions apply to employees who meet the definition of either the "professional," "administrative," or "executive" exemptions. Job titles are immaterial to a determination of exempt status, and the exempt status of each employee is an individualized analysis. The test for determining the exemptions has two components: (1) the "salary basis" test, and (2) the "duties" test.
Computer Professional Exemption
Under the FLSA, there is a special exemption for computer systems analysts, computer programmers, software engineers, and other similarly skilled workers in the computer field. The "computer professional" exemption applies to employees if they (1) are paid at least $455 per week on a salary basis or paid on an hourly basis at a rate not less than $27.63 an hour for each hour worked, and (2) spend the majority (at least 50 percent) of their time performing duties related to advanced systems analysis, design, development, or documentation. More information regarding the computer professional exemption is available online.
The computer professional exemption does not include employees engaged in the manufacture, repair, or troubleshooting of computer hardware and related equipment. Similarly, employees who spend most of their time troubleshooting or debugging software may not meet the duties test for the exemption. Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations are also not exempt under the computer professional exemption.
Learned Professional Exemption
Employees who do not meet the test for the computer professional exemption may qualify for the "learned professional" exemption under the FLSA. Computer employees may qualify for this exemption if they (1) are paid at least $455 per week on a salary (they cannot be paid hourly), and (2) spend the majority (at least 50 percent) of their time performing duties related to work requiring advanced knowledge (customarily acquired by a prolonged course of specialized education), which is predominantly intellectual in character and includes work requiring the consistent exercise of discretion and judgment in a field of science or learning. More information regarding the learned professional exemption is available online.
The learned professional exemption is restricted to professions where specialized academic training is a standard prerequisite for entrance into the profession. The best evidence of meeting this requirement is having the appropriate academic degree. However, the exemption may be available to employees in such professions who have substantially the same knowledge level and perform substantially the same work as the degreed employees, but who attained the advanced knowledge through a combination of work experience and intellectual instruction.
Alternatively, computer employees may qualify for the "administrative" exemption under the FLSA if (1) they are paid at least $455 per week (they cannot be paid hourly) on a salary, and (2) they spend the majority (at least 50 percent) of their time performing office or non-manual work directly related to the management or general business operations of the employer or the employer's customers, and such employees exercise discretion and independent judgment with respect to matters of significance. More information regarding the administrative exemption is available online.
These requirements may seem relatively straight-forward. To the contrary, the administrative exemption is the most difficult exemption to meet. The term "matters of significance" refers to the level of importance or consequence of the work performed. An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer will experience financial losses if the employee fails to perform the job properly. Similarly, an employee who operates very expensive equipment does not exercise discretion and independent judgment with respect to matters of significance merely because improper performance of the employee's duties may cause serious financial loss to the employer.
It should come as no surprise to California employers that California utilizes a different test for determining the computer and other "white collar" exemptions than is utilized under the FLSA. Employers that are unaware of, or ignore the differences between, California law and the FLSA regarding the exemptions are exposing their companies to significant liability for unpaid overtime, "off the clock" work, meal/rest periods, uniform violations, improper deductions, and recordkeeping violations under California law. A comparison of the FLSA and California exemptions is available online.
The proper application of the FLSA and state law exemptions is no easy task and requires not only an analysis of the statutes and regulations, but also a review of the case law that has developed relating to computer employees. The consequences of misclassification can be very significant to employers' business models and can be very costly. Therefore, we recommend that employers conduct an internal "audit" of the actual job functions of each of their exempt employees to determine if they are truly "exempt" under either the FLSA or state law.
What Is the Technology Team?
The Technology Team is a multidisciplinary team of lawyers at Epstein, Becker & Green, P.C., who have dedicated themselves to serving the needs of technology companies—public and private, large and small. The Technology Team's members all have extensive experience representing technology companies—such as software companies, electronic device manufacturers, medical device producers, and wireless telecommunications companies—and bring their diverse skills and collective understanding of the needs of technology companies to the task of helping these clients solve a variety of matters and problems.
Working in a coordinated manner, the Technology Team is able to efficiently provide comprehensive legal services, across a broad spectrum of matters, including entity formation, securities, debt financing, acquisitions/divestitures, regulatory issues, employee benefits and executive compensation, labor and employment law, intellectual property, and commercial litigation. And because the members work as a team, they can tailor the type and level of legal services to the particular needs of the client in a cost- efficient manner.
Located in various offices across the Firm, the Technology Team's members can address their clients' needs across the country, whether the matter involves litigation or simply the need to understand how businesses operate in different locations. Team members routinely collaborate with each other and with other attorneys inside and outside the Firm, when necessary, in order to provide clients with effective and efficient legal services.