As we’ve discussed in several previous blog posts, most employees must be paid at a rate 1.5 times their regular rate when they work more than 40 hours in a work week per the Fair Labor Standards Act (FLSA). But some employees, such as those working in certain Professional and Computer-Related positions, can be considered exempt from overtime. So what do you do if you are placing a manager in a contract position? Would that manager be exempt from the overtime requirements or nonexempt? Some managers can be exempt from overtime under the FLSA’s Executive Exemption, but as with the other exemptions, the contract position must pass a two-part test in order to qualify for the exemption.
Part One: Duties
A contractor has to do more than simply be in charge of another employee in order to fall under the Executive Exemption. In fact, they have to direct the work of at least two other full-time employees to qualify. They also must have the ability to hire or fire, or at least have their suggestions regarding those decisions be “given particular weight” by the person who does have that power. The DOL’s Fact Sheet for the Executive Exemption provides much more detail about what tasks constitute management activities and what exactly “particular weight” means.
Part Two: Compensation
A contractor can meet all of those requirements but still have to be paid overtime if he/she does not meet the compensation requirement. The Executive Exemption requires that employees be paid on a salary (NOT hourly) basis at a rate of at least $455 per week.
As always, we strongly recommend that you review the Fact Sheet for the Executive Exemption before you decide not to pay a contractor overtime under this exemption, and consult with an employment attorney any time you are uncertain about whether to classify a contractor as exempt or nonexempt from overtime.
This article is for informational purposes only and should not be considered legal advice.