Exempt Employees: Administrative and Executive

Over the past few weeks, we have been discussing Employees, overtime, and who is exempt from those regulations.  Last week, we talked about determining who is exempt, and this week, we talk about two of the most popular types of exemptions – the Administrative and Executive Exemption.  Read below for more information!

Administrative Exemption

FLSA: To qualify for the administrative employee exemption under the FLSA, all of the following tests must be met:

  1. 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;
  2. 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
  3. The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance[1].

Wisconsin[2]: To qualify for the administrative exemption for overtime pay under the Wisconsin DWD regulations, all of the following tests must be met:

  1. Primary Duty: consists of the performance of office or nonmanual work directly related to management policies or general business operations of their employer or their employer’s customers, or
  2. Employee customarily and regularly exercises discretion and independent judgment; and
    1. Regularly and directly assists a proprietor, or an employee employed in a bona fide executive or administrative capacity; or
    2. Performs under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge, or
    3. Executes under only general supervision special assignments and tasks; and
  3. Employee does not devote more than 20%, or in the case of an employee of a retail or service establishment who does not devote as much as 40%, of their hours worked in the workweek to activities which are not directly and closely related to the performance of the work described in subds. 1. through 2.; and
  4. Employee is compensated for their services on a salary or fee basis at a rate of not less than $700 per month.

Executive Exemption

FLSA:  To qualify for the executive employee exemption under the FLSA, all of the following tests must be met:

  1. The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week;
  2. The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;
  3. The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent[3]; and
  4. The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Wisconsin[4]:  To qualify for the executive employee exemption to overtime pay under the Wisconsin DWD regulations, all of the following tests must be met:

  1. Primary duty: Manages an enterprise, department, or subdivision (50% or more of his or her time)[5];
  2. Supervision: Customarily and regularly[6] directs the work of two or more other employees;
  3. Authority: Can hire and fire or suggest changes in status of other employees;
  4. Discretion: Customarily and regularly exercises discretionary powers;
  5. Nonexempt work: Is limited in performance of nonexempt work to 20% of weekly hours worked (or 40%, if an employee of a retail or service establishment); and
  6. Salary: Is compensated on a salary basis at a rate of not less than $700 per month.

Note: If an employee only executes tasks according to specific instructions or well-established systems, they are not exempt under this category. However, a detailed analysis should be completed, because there is flexibility in the application of this exemption.  For example, Radio Shack and Burger King Managers have been determined exempt under this category, even when their organizations had extensive manuals and operating policies that limited their discretion.  See Donovan v. Burger King Corp., 672 F.2d 221, 226 (1st Cir.1982) and Madely v. Radioshack Corp., 742 N.W.2d 559, 2007 WI App 244, 306 Wis. 2d 312 (Wis. App., 2007).

[1] “Matters of significance” is a loaded term – more information here: https://www.employmentlawhandbook.com/federal-employment-and-labor-laws/flsa/exemptions/administrative/discretion/

[2] Wis. Admin. Code § DWD 274.04(1)(b)

[3] “or their equivalent” means 2 part time employees = 1 full time employee etc.

[4] Wis. Admin. Code § DWD 274.04(1)(a)

[5] Assistant Managers can qualify for this exemption.

[6] “customarily and regularly” means “a frequency that must be greater than occasional but which, of course, may be less than constant.” 29 C.F.R. § 541.701.; Federal courts have held that an employee “customarily and regularly” supervises two full-time subordinates if he or she supervises subordinates who work a combined 80 hours per week at least eighty percent of the time.  Nicolai v. City of Whitehall (Wis. App., 2011)