Exempt vs non-exempt employee status

[hhana]

Our agency is debating over which positions are non-exempt and which are exempt. Would appreciate help especially in classifying CSR, Account Exec., producer, clerical, receptionist, personal lines manager, bookkeeper, cert specialist.
Thanks!

[scott]

Your employment lawyer needs to help you with this. State law varies and the federal law will kick you in the head if you listen to the wrong advice.

[superdash8]

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[jctwindad]

Not sure where the previous poster is coming from regarding State law. The law that applies is Fair Labor Standards Act (FLSA) which is a federal law. When it comes to a typical insurance agency, this one is not very difficult. See an attorney if you want to, but it's a fairly easy call. The following wording is from the law itself, and can be found at http://www.dol.gov/whd/flsa/index.htm

There are only a handful of classes for Exempt Employees:

1. Executive Exemption - is for a Managerial employee. The majority of their duties must be in Management, and they must manage at least 2 employees; and they must have the authority to hire or fire employees.

(Typically Agency Owners, Managers and Department Managers would be the only agency employees who meet this test)


2. Administrative - To qualify for the administrative employee exemption, all of the following tests must be met:

The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week; The employee’s primary duty must be 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; and The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

(CSR's, Account Managers, etc. fail this test because they do not exercise discretion and independent judgement with respect to matters of significance. There have been several court cases which ruled this way)

3. Professional Employees - The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; The advanced knowledge must be in a field of science or learning; and
The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

(An degreed accountant might qualify, but few others in an agency would meet this test)


4. Computer - The employee must be compensated either on a salary or fee basis at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;
The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;
The employee’s primary duty must consist of:
The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
A combination of the aforementioned duties, the performance of which requires the same level of skills.
.


5. Outside Salespersons - The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and The employee must be customarily and regularly engaged away from the employer’s place or places of business.


Therefore, in a typical agency the CSR, Account Exec, Clerical, Receptionist, bookkeeper, cert specialist, etc. would be classified as Non Exempt employees, paid on an hourly rate, and eligible for overtime pay. Be very careful to keep track of the Non Exempt employee's hours worked. The burden of proof is on the Employer, and failure to have documentation means you will lose a lawsuit, and have to pay backpay, according to the Employee's claim. There are many good timekeeping software applications, that allow the employee to clock in/out from their desk computer.

Owners, Producers, Degreed Accountants, and Department Managers can be classified property as Exempt, and paid a salary. They are not eligible for Overtime pay, and time records are not required to be kept for the Exempt employee.

Stephen Bryant, CPCU, CIC, AAI, LUTCF
President
Heritage Insurance Group, Inc.

[hhana]

Thanks Stephen for your very clear and specific response. I really appreciate that you provided the exact scenarios and examples that I needed in navigating these sometimes murky waters!

[kevinraz]

Related story: I used to work at Hartford. Started in one division, then went through their underwriting training class. Became an underwriter, got a letter of authority a few months after class. Great training, BTW. Started with the company as a salaried employee and remained salaried through the class time (10 weeks).

About 6 months after getting my first letter of authority I (and my fellow trainees) got emails from corporate HR that they had determined that during the time we were in training we were non-exempt employees. They also determined that until we had received our first letter of authority we were still non-exempt. They determined an average amount of OT worked during this time and offered to pay us an extra amount to compensate us for it. We did have the opportunity to state another amount of OT we had worked and to get compensated for that amount. The standard amount offered looked fair to me so I took it.

I was impressed though I imagine that they probably got snagged by a related incident and were doing this to avoid a more expensive lawsuit.

The lesson: if your agency or company employee does not have any discretion in decision making they are non-exempt, as noted in the other excellent posts. A CSR does not have any say in what they do or how they do it, they are just following orders. Underwriting or sales can be exempt.

Be careful on this stuff, folks. It'll bite you hard years down the road when you are least expecting it!

[jctwindad]

Employees making claims for Overtime pay can go back 2 years. As I noted previously, if you do not have timekeeping records, you will lose. The court/mediator will side with the employee.

I have found that this is a sensitive issue with agency owners, because most are paying CSR and other inside staff a salary, and the agency owner does not want to face the reality that he is wrong.

Reality is that slowly but surely, employees are learning of this law. The sooner you make the change in classification, and begin paying them an hourly wage, the better off you will be. Then hold your breath for the next 2 years, and pray that you don't get caught. I made the change about 5 years ago, so my worries are over.

Another thing to be careful of is employees who want to take work home, come back in on weekends, work from home on the computer, etc. You need to have a strict policy forbidding this. Otherwise, an employee can allege that they were working hours that they were not paid for. I would also take away the employee's office keys (for this and other valid reasons).

The nightmare scenario is the employee who is fired, or leaves for whatever reason, and sues for backpay and overtime. The federal government will investigate, find that you were in violation of the law (FLSA), and order you to pay the claimant and all other staff employed over the last 2 years, with interest and penalties. Scary stuff.


Stephen Bryant, CPCU, CIC, AAI, LUTCF
President
Heritage Insurance Group, Inc.

[pita3333]

Completely agree with the above posts. to add one other element, implement a system of electronic recording of time. Replace "paper" time cards or time recording.

Most providers of payroll services have this option available. An additional benefit is the tracking of PTO (vacation/sick), avoids the hassle of manual recording and manual recording errors.

There are at least two reasons:

1. Avoids doctoring of cards - persons writing in more hours than they worked (or on site).

2. Avoids situation of employee stating that while they did indeed work OT, they were always told to just write
"8.00" hours by their manager.

I have a close friend who works for a major carrier that still uses hand time cards. While he regularly puts in at least 1-1.5 extra hours (comes in early, short lunch) per day - with full knowledge of his direct manager - he is directed to put in his "standard" time. His employer is still at risk for that OT for two years! In fact they paid out on this about a year ago, but neglected to correct their recording method (at least at the local level). If home office HR knew they would likely blow a gasket!

Using a system where there is an electronic punch, you can avoid a good deal of this problem. It is a difficult transition, but a necessary one. People will think that you are watching them. You have to remind them that this is for their protection, that you want to be fair to them.

Realize that if you have had the benefit of this "unpaid" OT, you need to come clean and make payments to your employees to compensate them. Then you need to restrict future unauthorized OT. The suggestions made by Stephen Bryant are right on the money as respects to working from home and allowing/providing 24/7/365 access...not to mention other issues of data security.