In the beginning of March, the 9th U.S. Circuit Court of Appeals ruled that service advisors, in contrast to technicians, are not exempt from overtime pay under the Fair Labor Standards Act. The ruling is unique because it basically splits the Circuit Courts down the middle when it comes to this decision, says Joyce E. Smithey, who heads labor and employment practice at Rifkin Weiner Livingston in Annapolis, Md. A split within the circuit increases the likelihood that the Supreme Court will get involved in the ruling to resolve the issue, Smithey says. So where does this leave shop owners who are trying to figure out whether or not to pay their employees overtime?
“There’s a lot of uncertainty; it’s even difficult for lawyers,” Smithey says.
With a new administration and different rulings on both the state and the Federal level, this has left many small business owners unsure of how to proceed. If a shop owner, whether on purpose or not, is not in compliance with his or her state laws, the owner may face a lawsuit and owe back pay. Smithey, who shares some tips with FenderBender, says that the best thing an owner can do to prepare is to speak with a lawyer.
Could you explain the difference between an exempt and a nonexempt employee in regard to overtime pay?
When we’re talking about exempt and nonexempt, we’re referencing the Fair Labor Standards Act that governs wages and overtime. Business owners need to figure out which employees fit within exemptions, and that’s where it gets difficult—there are a lot of interpretations. For example, computer professionals, drivers, loaders and farm workers are a few job titles that are exempt. Then, there are some broader exemptions like executive administration professionals. There are many exemptions and countless pages of documentation that cover this.
In the automotive industry, there are specific exemptions for people who deal with parts and technicians, but only if they deal directly with an auto dealer. Another thing that shop owners will have to look at is the way they are paying their employees. If an employee is getting a flat rate, but that rate is based on sales, they could qualify under the commissioned sales exemption that’s been litigated in both the 4th and the 7th Circuit and in California.
What are the differences in job duties that may make one employee exempt and another nonexempt from overtime pay?
An area that collision repair shops will want to take a closer look at is office employees. Common examples of exempt employees are professionals and those that do executive and administrative work. A good rule of thumb is people who are licensed are exempt. I saw a case once where a shop got in trouble for not paying their bookkeepers with a certified public accountant’s (CPA) license overtime. They had to be paid because of the CPA.
To get to the professional exemption, there are a number of other requirements. One of them is a salary-based test. This was highly publicized at the end of 2016, where the base level salary was going to be raised and then it was halted right before the deadline. Another requirement is the duties that the employee is performing. Management employees need to oversee two or more people and have the power to hire and fire. Someone in your shop that’s just answering phones will not be exempt. However, for a larger body shop that has 20 employees, a manager in that shop will likely be exempt.
Since there are so many discrepancies from state to state, what can a shop owner do that’s unsure of what guidelines he or she needs to follow?
Business owners need to be aware that wages are not just governed by the Fair Labor Standards Act (FSLA). States have their own regulations and different exemptions and criteria that don’t necessarily reflect what is happening at the national sector. A lot of the state statutes are even more strict than the FSLA. For example, in Maryland, we have what’s called treble damages, which means if you haven’t paid an employee overtime, they could be entitled to triple what is due to them.
You can do nine out of 10 things right, or the law can change, and you’ll be held accountable. It’s hard to know exactly what’s out there if you don’t specialize in it for a living. I would suggest talking to an attorney. It will give you peace of mind if you’re able to go in and say, “I have this many employees, this is what they all do.” The attorney will be able to give you guidelines as to whether or not you need to start paying anyone overtime.
If an owner finds out that they have an employee that is entitled to overtime pay, how should he or she proceed?
If a shop owner finds out that they have an employee that has been misclassified, they’ll want to correct that right away. Shops need to keep accurate records of whenever their employees are entitled to overtime pay work. Owners also need to communicate an employee’s schedule and make it clear what the policy is for overtime. That can help protect against those 9-to-5 employees that are supposed to take an hour for lunch, but come back later on claiming they answered phones for that hour. Make it clear if you have an overtime policy that requires approval ahead of time. If you have an employee that may be entitled to back wages, talk to a lawyer. It’s good to address the risk moving backward.
