Many businesses often have “working foremen.” These are individuals who often have dual responsibilities. They may work along side other workers, but they may also have customer oversight and/or management responsibilities. So, the question arises should they be paid as exempt (salary) or non-exempt (hourly) employees. Improper classification can result in lawsuits and, potentially, significant damages.
Under the Fair Labor Standards Act (“FLSA”), employers are typically required to pay non-exempt employees time-and-a-half wages for hours worked over forty hours per week. However, the FLSA contains exemptions for employees “employed in a bona fide executive, administrative, or professional capacity.” To qualify for these exemptions, an employee’s “primary duty” must be the performance of exempt work.
“Primary duty” means the principal, main, major or most important duty that the employee performs. When determining an employee’s primary duty, courts will consider factors including: the relative importance of the exempt duties as compared with other types of duties; the amount of time spent performing exempt work; the employee’s relative freedom from direct supervision; and the relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee. Generally, employees who spend more than 50 percent of their time performing exempt work will satisfy the primary duty requirement. However, an employee is not required to spend more than 50 percent of their time performing exempt work if other factors support that the requirement is met.
In the context of working foremen, the executive and administrative exemptions are most likely to apply.
To qualify under the executive exemption, the employee must be “employed in a bona fide executive capacity.” This applies to any employee:
- Compensated on a salary basis at a rate of not less than $684 per week, exclusive of board, lodging or other facilities;
- Whose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
- Who customarily and regularly directs the work of two or more other employees; and
- Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.
The executive exemption distinguishes between “the bona fide executive and the working foreman or working supervisor who regularly performs production work or other work which is unrelated or only remotely related to his supervisory activities.” The latter is typically not exempt. Courts have found that when an employee’s responsibilities include evaluating subordinates and exercising “considerable discretion,” the employee is exempt under the executive exemption. Courts have also held that even when employees worked in the field, they were exempt because their responsibilities for supervising and managing people and equipment assigned to their units were dominant even if integrated into their other duties.
Additionally, recent Department of Labor Wage and Hour Division (“WHD”) Opinion Letters have found that even when employees didn’t qualify under the executive exemption because they lacked sufficient supervisory responsibilities, project superintendents/supervisors may qualify under the administrative exemption. To qualify under the administrative exemption, the employee must be “employed in a bona fide administrative capacity.” This applies to any employee:
- Compensated on a salary or fee basis at a rate of not less than $684 per week, exclusive of board, lodging or other facilities;
- Whose 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; and
- Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
The regulations specify that to qualify for the administrative exemption, “an employee must perform work directly related to assisting with the running of servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.” “Work directly related to the management or general business operations” includes work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations, government relations; computer network, internet and database administration; legal and regulatory compliance; and similar activities.
In Opinion Letter FLSA2018-4, the WHD responded to a question regarding whether project superintendents (“PSs”) employed by a commercial construction company qualify for exemption under the FLSA as persons employed in a bona fide executive, administrative, or learned professional capacity. There, the employer company provided general contracting, designing/building, and construction management services to its customers. The WHD ultimately concluded that the PSs qualified as exempt administrative employees. The WHD reasoned that because the PSs were responsible for overseeing a commercial construction project from start to finish, their primary duty related directly to the management or general business operation of their employer. The WHD found that the PSs have “functional rather than departmental authority” and help to administer their employers’ business operations. The WHD also focused on the level of discretion and independent judgment exercised by the PSs and found that their responsibility for securing or hiring subcontractors, their involvement in change orders, and their overseeing the work of subcontractors was a sufficient exercise of discretion in matters of significance.
In Opinion Letter FLSA2018-10, the WHD responded to a similar question regarding whether a project supervisor in the residential homebuilding industry qualifies for the administrative exemption. There, the project supervisors served as the company’s representative at the worksite in dealings with subcontractors, suppliers, customers, and government inspectors. The project supervisors spent more than half their time doing non-manual work, including directing, scheduling, managing, and paying subcontractors and suppliers; reviewing and modifing new home plans; reviewing initial home construction budgets to ensure reasonable estimates; inspecting the work of subcontractors and suppliers; working with subcontractors to ensure compliance with all federal and state safety procedures and regulations; and taking appropriate and necessary action if an accident occurs.
The WHD also found the project supervisor’s primary duties involved the exercise of discretion and independent judgment with respect to matters of significance because the project supervisors had significant authority to adjust the construction process as necessary when needed to meet any safety, quality, or legal requirements; to negotiate solutions to issues raised by the building inspector, subcontractors, or suppliers; to order the removal of their employees when necessary; and to commit the homebuilding company to any payments to subcontractors or suppliers for any work or building materials provided. The project supervisors had the authority to formulate, affect, interpret, and implement management policies and operating practices; perform work that affects business operations to a substantial degree; commit the employer in matters that have significant financial impact; waive or deviate from established policies and procedures without prior approval; negotiate and bind the company on significant matters; and investigate and resolve matters of significance on behalf of the company. Thus, the WHD determined their primary duties met the requirement regarding the exercise of discretion and independent judgment with respect to matters of significance and, as such, they were FLSA exempt administrative employees.
However, courts have found similar project superintendents did not qualify for the administrative exemption when their duties were primarily to inspect the work of subcontractors to ensure compliance with the builder’s plans to schedule the subcontractors and supplies to ensure they were both in place at the proper time. The court concluded that ordinary inspection work generally does not meet the duties requirements for the administrative exemption. This makes clear additional non-manual duties similar to those discussed in the WHD opinion letters are necessary for employees to qualify for this exemption.
Takeaways for Employers
Determinations regarding whether construction employees are exempt under these various exemptions are highly fact specific. However, the cases discussed above may offer guidance to employers with similar circumstances. If an employee’s responsibilities include evaluating subordinates and exercising considerable discretion, they may be exempt under the executive exemption. If an employee does not have supervisory duties, but has a primary duty of performing sufficient non-manual work directly related to the management of the employer and exercises considerable discretion, the employee may be an exempt administrative employee.
If you’re unsure if your employees qualify as exempt under these regulations, contact the employment law experts at General Counsel, PC today at 703-991-7973.