Administrative Exemption Test

Review this file as background to the FairPay Act.  The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hour worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 in a workweek.  Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as executive, administrative, professional and outside sales employees.  Section 13(a)(1) and Section 13(a)(17) also exempts certain computer employees.  To qualify for exemption, employees must meet certain tests about their job duties and be paid a salary of not less than $455 per week.  In some jurisdictions (including Guam), administrative employees must supervise at least two (2) subordinates to qualify for exemption.

Exemption NOT Based on Job Titles

The standard duties tests of the final regulations were effective August 23, 2004, and are as protective as, if not more protective than, the short duties test of the old regulations.  Before the the new final regulations became final, the last major revision of the duties tests occurred in 1949.  Those old "duties" tests were complicated and contained difficult provisions to apply.  The old regulations were based upon a work place that has experienced dramatic transformations and were not relevant to the work environment of the 21^st century.  The new regulations use objective, plain language so that employees can understand their rights to overtime pay and employers can know their responsibilities for overtime pay.

In 2005, the United States District Court for the District of Columbia confirmed that the standard duties tests for the administrative exemption of the final regulations are substantially the same as those in the old regulation.  In a case brought against Government Employees Insurance Company (GEICO) under the old regulation, insurance claims adjusters were seeking overtime pay.

GEICO claimed it was not liable for any overtime pay because their adjusters were exempt administrative employees.  The court looked to the new regulations for guidance and concluded that GEICO improperly classified the employees as administratively exempt.  Even though the final regulations were not in effect when the court announced its decision, it found that “they are instructive...(for)... interpretation of the requirements of the administrative exemption.”  The court also observed that “the general criteria for employees employed in an administrative capacity are essentially the same under the August 2004 regulations as in the current regulations.”  Thus, this decision confirms that the standard administrative duties tests of the final regulations are equally protective as the old regulations.

The decision is also useful because it confirmed that the exemption does not apply based upon job title alone, but rather that a case-by-case assessment of an employee’s job duties is required.  There is no blanket exemption for claims adjusters (not just GEICO's), and when a specific inquiry is made, most claims adjusters will fail to satisfy the tests for exemption.

Last revised: 11/25/06