Myth: You don't have to pay overtime to your salaried employees

It's tough to work in retail management - sometimes you're damned if you get promoted to management and you're damned if you don't accept a promotion.

Jim Friderici should know: he has been working in the retail business for over 20 years in and around Albany, New York, the last five of which he managed an Electronics Boutique of America store (recently bought out by Gamestop Inc.)

Friderici explains a typical situation that occurs in retail. "The company verbally requires us to work 45 hour weeks. But managers are considered exempt from overtime. We are now questioning this because [if you read the fair labor standards act] it appears that we don't meet all the criteria of exempt or "salaried" management."

"What it comes down to is that we are being treated like hourly employees. Managers are required to work certain days and shifts. 40 hours in writing has been replaced by 45 hours verbally, with threat of termination for those who do not comply." If we are truly exempt, how can they state that we have to work certain days and hours when we are on salary?" he asks.

Friderici believes this affects managers of at least eight stores in the immediate area, and many more state wide. "It has been ongoing, and the bosses have been more vigilant on us working a 45 hour work week in the past few years," he says. " We have talked but so far not taken action. I know one manager was terminated because he didn't work the Monday required shifts."

When you are terminated, you can then go to unemployment, and the company needs to have a valid reason why they fired you. Perhaps you didn't meet sales goals. They can change the goals at any time. "They can find many reasons to terminate you," explains Friderici. And the State of New York has "at will employment".

Friderici was told that, when employees are in "supervisory" positions, they are to be classified as exempt. Does it pay for Friderici to be exempt? He may have been better off as an hourly employee or assistant manager.

A lot of assistant managers refuse to move up because they don't want to lose their overtime. They are classified as non-exempt and paid hourly. In cases where they work over 40 hours they receive overtime pay.

"Assistant managers can make more money with the overtime, but as a manager I have to make sure they don't work overtime without corporate approval," he says. Sounds like a no-win situation for both assistant managers and managers. Also, If Friderici must get permission in decision-making, does this mean that he is exempt? (see below).

No wonder it's getting harder to find people to fill management positions. "In other states there have been lawsuits, California had a lawsuit settled for other retail managers," says Friderici.

No matter where you live, knowing whether or not you are exempt, and whether or not you qualify for overtime is not straightforward. This is a tough question for both employees and employers and the U.S. Department of Labor doesn't seem to have any easy answers. It is important that both employees and employers know the rules. If an employer exempts the wrong people, a lawsuit could be costly, paying back pay to employees claiming misclassification.

The Fair Labor Standards Act (FLSA) distinguishes between "exempt" and "non-exempt" employees. Unless employees are "exempt," they are entitled to overtime pay. Many employers believe that simply paying an employee a salary rather than an hourly wage makes the employee exempt from overtime. It is more complicated than that.

The rules, which took effect August 23, 2004, state the following:

Overtime
1) overtime for all workers earning less than $455 per week (which translates to $23,660 annually). This three-fold increase from the former threshold of $155 is expected to increase the number of non-exempt workers by some 6.7 million.

2) Workers earning more than $455 weekly and less than $100,000 annually are subject to protections from loss of overtime pay, under standard "duties tests" that are equal to or more protective than former tests. This provision, then, should also increase the number of non-exempt workers.

The Department of Labor states that you may classify as Exempt from Overtime "certain employees whose workplace activities primarily involve executive, administrative or professional duties."

1) For an executive employee: The "primary duty" of this individual must be the "management of the organization." Additionally, this person must be one who "customarily and regularly directs the work of two or more other employees." Finally, this individual must either have the authority to hire and fire other employees, or offer suggestions and recommendations for such personnel actions that carry "particular weight." Smaller employers may need to take a close look at their operations to see if their assistant managers remain exempt under these guidelines particularly in light of the fact that these individuals must be supervising two full time employees.

The rules pertaining to overtime are complex. The bottom line: It's always legally safer to pay wages and overtime.