Dealership Risk Management: Properly Applying Exemptions to Minimum Wage, Timekeeping and Overtime Pay Requirements Under the Fair Labor Standards Act

With the updates to the White Collar Exemptions under the Fair Labor Standards Act (FLSA) scheduled to go into effect on December 1, 2016, this is an ideal time for dealers to review their current workforce classifications and ensure compliance. In order to start this process, dealerships should take the following steps:

1. Gather existing job descriptions and ensure that they are (1) up to date and (2) accurately describe the duties performed by employees in each position.

2. Identify which positions within the dealership workforce have been treated as “exempt” from one or more requirements under the FLSA.

3. For each position classified as “exempt” within the dealership workforce, identify the specific exemption or exemption(s) that the dealership believes that the position has qualified under.

4. Perform an internal audit of each exempt position identified to ensure that each meets all of the requirements thereof. Requirements include things such as minimum pay standards, timekeeping obligations and duties limitations.

It is the employers’ burden to demonstrate that employees are properly classified. Dealerships should consult with their legal counsel to determine if there are any local or state laws which are also applicable to their workforces during these internal audits. Not all states recognize the federal exemptions outlined below. Furthermore, many states and/or municipalities have implemented their own minimum wage requirements. Dealerships should keep in mind that local and state laws, to the extent they are more favorable to the employee, will be controlling.  Thus, meeting the requirements of the FLSA may not be enough to ensure that the dealership is not at risk for a wage/hour claim.

5. If the dealership identifies an employee as being improperly classified under a specific exemption, consider other exemptions which may be available to the dealership and applicable to the employee.

a. Executive Exemption: 

This exemption applies to employees who perform the following duties: (1) the employee’s primary job duties involve managing the enterprise or a customarily recognized department or subdivision of the employer; (2) the employee regularly supervises two or more full time (or equivalent) employees; (3) the employee has the authority to hire and fire or the employee’s recommendations are heavily influential in the decision-making process with respect to the employees supervised.

Under the current rule, employees classified under the Executive Exemption must earn a minimum of $455.00 per week. Effective December 1, 2016, this amount will jump to $913.00 per week in order to qualify. Under the new rule, dealerships will be able to use nondiscretionary bonuses and other incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Such payments may include nondiscretionary incentive bonuses. In order to include this type of bonus or incentive payment in a dealership’s standard salary level computation, such payments must be made by the dealership on a quarterly or more frequent basis.

Under the FLSA, employees under this exemption are exempt from (1) Minimum Wage (2) Overtime Pay and (3) Timekeeping requirements (State law may vary).

b. Professional Exemption: 

This exemption applies to employees who perform the following duties: (1) the employee’s primary duty is the performance of work requiring advanced knowledge, meaning the work is predominantly intellectual and requires the consistent exercise of discretion and judgment; (2) the employee has advanced knowledge in a field of science or learning (i.e. engineering, accounting, law, actuarial sciences, etc.); (3) the advanced knowledge possessed by the employee is customarily acquired by a prolonged course of specialized instruction.

Under the current rule, employees classified under the Professional Exemption must earn a minimum of $455.00 per week. Effective December 1, 2016, this amount will jump to $913.00 per week in order to qualify. Under the new rule, dealerships will be able to use nondiscretionary bonuses and other incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Such payments may include nondiscretionary incentive bonuses. In order to include this type of bonus or incentive payment in a dealership’s standard salary level computation, such payments must be made by the dealership on a quarterly or more frequent basis.

Under the FLSA, employees under this exemption are exempt from 1) Minimum Wage (2) Overtime Pay and (3) Timekeeping requirements (State law may vary).

c. Administrative Exemption: 

This exemption applies to employees who perform the following duties: (1) the employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; (2) the employee regularly exercises discretion and independent judgment with respect to matters of significance to the business (such as department managers, office managers, human resources managers, etc).

Under the current rule, employees classified under the Administrative Exemption must earn a minimum of $455.00 per week. Effective December 1, 2016, this amount will jump to $913.00 per week in order to qualify. Under the new rule, dealerships will be able to use nondiscretionary bonuses and other incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Such payments may include nondiscretionary incentive bonuses. In order to include this type of bonus or incentive payment in a dealership’s standard salary level computation, such payments must be made by the dealership on a quarterly or more frequent basis.

Under the FLSA, employees under this exemption are exempt from 1) Minimum Wage (2) Overtime Pay and (3) Timekeeping requirements (State law may vary).

d. Highly Compensated Exemption: 

This exemption applies to employees who perform the following duties: (1) the employee’s duties involve office or non-manual work; (2) the employee customarily and regularly performs at least one of the exempt duties of the administrative, executive or professional exemptions. This exemption provide a “catch-all” of sorts for highly compensated employees who may have a blend of professional, executive and administrative duties.

Under the current rule, employees classified under the Highly Compensated Exemption must earn a minimum of $100,000 per year. Effective December 1, 2016, this amount will jump to $134,004 per year in order to qualify. Under the new rule, dealerships will be able to use nondiscretionary bonuses and other incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level. Such payments may include nondiscretionary incentive bonuses. In order to include this type of bonus or incentive payment in a dealership’s standard salary level computation, such payments must be made by the dealership on a quarterly or more frequent basis. Under the FLSA, employees under this exemption are exempt from 1) Minimum Wage (2) Overtime Pay and (3) Timekeeping requirements (State law may vary).

e. Farm Implement Dealer Mechanic Exemption: 

This exemption is only applicable to employees of dealerships who are primarily (more than 50% of its business) engaged in the business of selling farm implements to consumers or end users.

If the employer meets this preliminary threshold, the exemption may apply to employees who perform the following duties: (1) the employee spends more than 50% of their time engaged in doing mechanical work and servicing farm implements; (2) the employee spends less than 50% of their time performing non-mechanical work such as washing, cleaning, painting, polishing, changing tires, installing seat covers, oil changes, etc. Employees who deliver parts do not qualify for this exemption.

An employee who qualifies for this exemption is exempt from overtime pay. The employer, however, must still (1) keep accurate time records for all hours worked by the employee; and (2) pay the employee at a rate in which they are never paid below the applicable minimum wage. While the federal government sets a nationwide minimum wage, dealerships should check state/local minimum wage laws to ensure compliance. To the extent state/local minimum wage rates are higher than the federal level, they will be controlling.  The most effective way to ensure compliance is to pay the employee on a set, hourly basis for all hours worked.

f. Farm Implement Dealer Partsman Exemption: 

This exemption is only applicable to employees of dealerships who are primarily (more than 50% of its business) engaged in the business of selling farm implements to consumers or end users.

If the employer meets this preliminary threshold, the exemption may apply to employees who perform the following duties: (1) the employee spends more than 50% of their work time engaged in the requisitioning, stocking and dispensing of parts for farm implements.

An employee who qualifies for this exemption is exempt from overtime pay. The employer, however, must still (1) keep accurate time records for all hours worked by the employee; and (2) pay the employee at a rate in which they are never paid below the applicable minimum wage. While the federal government sets a nationwide minimum wage, dealerships should check state/local minimum wage laws to ensure compliance. To the extent state/local minimum wage rates are higher than the federal level, they will be controlling.  The most effective way to ensure compliance is to pay the employee on a set, hourly basis for all hours worked.

g. Farm Implement Dealer Salesman Exemption: 

This exemption is only applicable to employees of dealerships who are primarily (more than 50% of its business) engaged in the business of selling farm implements to consumers or end users.

If the employer meets this preliminary threshold, the exemption may apply to employees who perform the following duties: (1) more than 50% of the employee’s work time is spent making sales of farm implements, obtaining orders for farm implements or obtaining contracts for the sale of farm implements.

An employee who qualifies for this exemption is exempt from overtime pay. The employer, however, must still (1) keep accurate time records for all hours worked by the employee; and (2) pay the employee at a rate in which they are never paid below the applicable minimum wage. While the federal government sets a nationwide minimum wage, dealerships should check state/local minimum wage laws to ensure compliance. To the extent state/local minimum wage rates are higher than the federal level, they will be controlling.  The most effective way to ensure compliance is to pay the employee on a set, hourly basis for all hours worked.

h. Commission Sales Exemption: 

This exemption applies to retail and service establishments. As such, dealerships which do not sell farm implements (i.e. OPE and Construction) may still qualify for this exemption.

For an employee to qualify for this exemption, the employee must meet the following requirements; (1) at least 50% of the employee’s total compensation (for a representative period not less than one month) must come from commissions; (2) the employee must earn at least 1.5 times the applicable minimum wage for each hour worked (during each work week worked).

An employee who qualifies for this exemption is exempt from overtime pay. The employer, however, must still keep accurate time records for all hours worked by the employee; and (2) pay the employee at a rate in which they are never paid below 1.5 times the applicable minimum wage. While the federal government sets a nationwide minimum wage, dealerships should check state/local minimum wage laws to ensure compliance. To the extent state/local minimum wage rates are higher than the federal level, they will be controlling.

i. Outside Sales Exemption: 

This exemption applies to retail and service establishments. As such, dealerships which do not sell farm implements (i.e. OPE and Construction) may  still qualify for this exemption.

For an employee to qualify for this exemption, the employee must meet the following requirements; (1) the employee must be primarily engaged in making sales or obtaining orders or contracts for which consideration will be paid by the client or customer; (2) the employee is customarily and regularly engaged away from the employer’s place of business in performing their primary duties.

Under the FLSA, employees under this exemption are exempt from 1) Minimum Wage (2) Overtime Pay and (3) Timekeeping requirements (State law may vary).

6. Dealerships should take prompt corrective action to ensure that any misclassified employee is re-classified in a way that complies with applicable laws.

7. Need help getting your internal audit started? EDA can help answer questions and provide you with additional information about the exemptions above. Contact EDA’s General Counsel Natalie Higgins at nhiggins@equipmentdealer.org.