Are Csrs ‘Exempt’ Employees?

by Judi Newman and the IIABA Virtual Faculty

Within the insurance agency industry, is the customer service representative position considered to be ‘exempt’ or ‘nonexempt’ under FLSA?

There’s lots of confusing information about this online, and no one to figure out — and that’s scary. Are there any statistics about this for our industry? Isn’t this position fairly generic within our industry? Isn’t there a formula that can be applied that would be far simpler to use than the flood of guidance available on the Internet and from the government?

Sure, here’s a simple answer: Maybe, but probably not. Not to appear facetious but, no, there isn’t always a simple answer. Each situation is unique and a 'CSR' can actually have duties that go far beyond those of a typical CSR and move them into the 'exempt' area. In most cases, CSRs fit the 'nonexempt' status. That being said, here are some comments from our faculty and an excellent article on a related subject by Judi Newman.

Remember: Each situation is different. Please talk to an employment attorney. Try www.donphin.com.

FACULTY RESPONSE

During the past 20 plus years, I’ve consulted on this very subject. In more than 95% of the agencies I’ve contacted, the position of CSR (or whatever term they have bestowed) is a 'salaried' position. One would take this to mean that it would be exempt. In delving into the idea most agencies have behind using the 'salary' term, they’re hinting at the idea that this is an exempt position. The bottom line isn’t exempt versus non exempt — it has to do with overtime pay, an expense that few agencies want to incur.

I’ve reviewed this every way to Sunday. In my opinion, under no circumstances will a true customer service rep position ever pass the FSLA exemption test.

Among the exceptions to the Act, the most frequently applied are the executive, the professional, and the administrative exceptions.

An employee who has supervisory authority over other employees and is paid a salary (that is, not paid on an hourly basis) is considered an executive. A professional employee is generally an individual whose work is based on an advanced degree, such as a lawyer or doctor. The administrative exception is relatively narrow, limited to the confidential secretaries of certain executive-level employees.

Individual employees who fall into one of these three exceptions are 'exempt' from overtime calculations. A quick overview of each of these might lead one to believe that a CSR could fall into the administrative category.

I’ve put together a test for the administrative employee. Answer each point as if you’re on the witness stand. Here it is:

ADMINISTRATIVE EXEMPTION TEST

If employees are paid at least $250 per week, or $13,000 annually, they will be exempt from the overtime provisions of the FLSA if:

• The employees earns a salary.
• Their primary job responsibility is the performance of non-manual work, and
• The employee’s primary duties include work requiring the exercise of discretion and independent judgment (Donovan v. United Video, Inc., 1984).

To be exempt under the Administrative Exemption Test, employees should spend at least 50% of their time performing non-manual work which is directly related to:

• The employer’s management policies or general business operations, or
• Academic instruction or training carried on in the administration of a school system or educational establishment.

In determining whether or not an employee’s primary duties include work requiring the exercise of discretion and independent judgment emphasis is placed on the nature of the work rather than its consequences. Specifically, the employees’ work should require real and substantial discretion and judgment.

With regard to real discretion and judgment, the employees’ work should involve:

• The comparison and evaluation of possible courses of action without the benefit of structured operating procedures, and
• A decision regarding the appropriate course of action free from immediate direction or supervision (Donovan v. Simmons Petroleum Corp., 1981).

With regard to this requirement, it’s important to remember that the work under consideration is part of the employees’ primary duty. Hence, unless it involves the administration of academic instruction, it must be directly related to the employer’s management policies or general business operations.

In contrast, the work done by bookkeepers, secretaries, and clerks of various kinds represents the kind of work which isn’t normally directly related to management policies or general business operations (C.F.R. par. 5441.205 (c) (1)).

One of the most frequent causes of misinterpreting the term, 'discretion and independent judgment' is the failure to distinguish it from the use of skill (Donovan v. Simmons Petroleum Corp., 1981). For example:

• Factory representatives who advise their customers on the operation, maintenance, and repair of a complicated piece of equipment are demonstrating a skill.
• Factory representatives who advise their customers on various adaptive uses of the same equipment are exercising discretion and independent judgment.

Because of the blurred distinction between highly skilled work and work requiring discretion and judgment, the Wage and Hour Division of the Department of Labor issued a regulation (Public Law 101.583) that permits some workers in the computer software field to be classified as exempt even if they’re paid hourly. The law allows highly skilled computer software employees who are paid hourly to be classified exempt if:

• Their jobs meet the primary duty requirement in one or more of the FLSA exemption tests, and
• They’re paid an hourly rate equal to at least 6.5 times the minimum hourly wage.

The law does not allow employees who operate computers, or who engage in the manufacture, repair, or maintenance of computer hardware to be classified exempt.

CSRs: THE OVERTIME DILEMMA

Most agency owners feel that their CSRs are professionals. The state requires them to have a license to sell insurance, while some hold other certifications such as ACSR, CISR, CPSR, or CIC. Since they’re professionals, you might consider them to be exempt employees and thus not entitled to overtime pay. Wrong!

Just because an employee is licensed by the state doesn’t necessarily make them a professional. Hairdressers and manicurists are licensed by the state, yet you wouldn’t think about not paying them overtime if they were your employees. The fact that you pay salaries instead of an hourly wage doesn’t create a situation in which employees are exempt from overtime.

The Fair Labor Standards Act (FLSA) sets minimum wage, overtime pay, record keeping, and child labor standards for non-exempt employees. This article will discuss overtime and the age-old dilemma of 'to pay or not to pay.'

OVERTIME PAY

The FLSA requires that overtime be paid to most employees at the rate of one and one-half times their regular rate of pay when employees work more than 40 hours in a week. Overtime compensation must be paid on the regular payday for the pay period covered and, with one exception, overtime compensation must be paid in currency. The only exception to this rule is that employers may deduct the reasonable value of lodging or meals in certain circumstances. (The regular rate of pay is equal to an employee’s hourly rate of pay or higher). The FLSA covers the majority of employees in this country.

EXAMPLES OF OVERTIME PAY VIOLATIONS

Unfortunately, many employers violate overtime pay laws in varied and sometimes creative ways. Some of the most common violations are:

• Improper calculation of the pay rate for overtime.
• Failure to count work time in computing overtime pay, such as working employees 'off-the-clock' or failing to count pre-shift or post-shift activities as work time.
• Improperly failing to pay employees actual time and one-half overtime pay by wrongly claiming that the employees are somehow exempt from the overtime laws.
• Perhaps the greatest misconception among employers is that they don’t have to pay overtime if employees are paid on a salaried basis. This is false! Salaried employees are entitled to overtime pay as long as their job duties don’t come under an exemption to the overtime pay laws.

In overtime pay cases, courts start with the premise that all employees are entitled to overtime compensation. Only those employees who an employer can prove fit within one of the exemptions to the FLSA can lawfully be denied overtime pay.

What’s more, state laws can provide benefits in addition to those under the FLSA. For example, some states require employees who aren’t covered by the FLSA to be paid overtime compensation. Some states also require that overtime be calculated at higher rates than the FLSA.

It’s essential to understand when overtime must be paid. The difference between exempt and non-exempt employees must be tested. It’s equally important to calculate overtime rates and amounts accurately.

COMPUTING THE REGULAR RATE OF PAY

The regular rate of pay is the rate at which overtime compensation must be calculated. For each hour of overtime worked an employee must be paid one and one-half times their regular rate of pay. This rate doesn’t necessarily equal an employee’s hourly pay rate. The regular rate includes work-related payments that aren’t made for overtime work such as shift differentials, bonuses, longevity pay, educational incentive pay, etc. Thus, the regular rate always equals or exceeds an employee’s hourly rate of pay or, if the employee is salaried, the employee’s hourly equivalent.

Here are some examples of types of payments included in the regular pay rate:

• Shift Differentials: Some employers pay a shift differential if an employee works at night, on weekends, or holidays.
• Bonuses: Some employers fail to adjust an employee’s rate of pay after the employer pays the employee a bonus. Non-discretionary bonuses are bonuses tied to working certain hours or achieving certain results that must be included in the overtime rate paid. Discretionary bonuses, which are in the nature of a gift, may be excluded.
• Longevity pay: Some employees receive additional pay in recognition of how long they’ve been employed. These types of payments must be included in the regular rate of pay.
• Incentive pay: Some employers provide additional payments if an employee achieves a goal such as education or training. These payments must be included in the regular rate of pay.

COMPUTING THE REGULAR RATE FOR SALARIED EMPLOYEES

Most salaries are intended to compensate an employee for their regularly scheduled hours during the work week. To compute the regular rate of pay, divide the salary plus all other inclusions in the regular rate by the number of hours that the salary is intended to compensate the employee. The employee is entitled to receive one and one-half times their regular rate of pay for each hour worked over 40 hours in a week.

For example, if an employee is paid $600 a week as salary and works 40 hours a week, the employee’s overtime rate of pay is computed by dividing $600 by 40, or $15 per hour. Thus, for each hour worked over 40 hours a week, the employee is entitled to receive 1.5 times $15.00, which equals $22.50 an hour.

COMMONLY USED, BUT PROHIBITED, PAYMENT METHODS

Many employers have applied their creativity to the issue of overtime payment — and broken the law in doing so. Consider these examples:

Refusal to Authorize Overtime. Let’s assume your CSRs, receptionist, and other clerical people are non-exempt and that your employee handbook prohibits overtime unless approved by management. But, as a manager, you know that a CSR is coming in early and/or staying late to get the work done. Since this overtime hasn’t been authorized, you feel that you aren’t required to pay accordingly.

Not so. If an employee chooses to put in extra hours and you as the employer have knowledge of this, you must still pay overtime. Otherwise, the FSLA suggests that you have been unjustly enriched.

Fixed Sum for Varying Amounts of Overtime. Some employers pay a fixed sum that they attempt to use as overtime compensation. A lump sum payment for work performed during overtime hours without regard to the number of hours worked does not qualify as overtime compensation. This is true even if the lump sum exceeds the amount to which the employee would be paid on a per hour basis.

Salary Includes Regularly Scheduled Overtime Hours. A similar method involves an employer assertion that a portion of an employee’s salary constitutes overtime pay. This is prohibited, except under very specific circumstances. Overtime pay must be in addition to and can not be a part of an employee’s salary.

Bonus as Part of Overtime Pay. Some employers pay bonuses to employees and tell them that the bonus includes the employee’s overtime pay for working on a particular project or job. Unless this 'bonus' is tied to each hour worked, it does not constitute overtime compensation.

‘Comp Time’ as Overtime. So what about giving 'comp time?' With the exception of government employees, overtime compensation must be paid in cash. For example, it’s illegal to offer an employee a future vacation day in return for working an extra two hours per day for four days. Compensatory time off is prohibited as payment for hours worked in excess 40 hours a week.

TRAVEL TIME AS OVERTIME

Generally, travel time for business purposes during work hours requires overtime pay, while ordinary home-to-work travel does not. Consider these circumstances:

• Working While Traveling: Time spent working while traveling is considered compensable work time.
• Travel On Weekends: Travel on weekends is compensable even if no work is performed, as long as the work hours cut across the employee’s administrative workday. For example, if the employee’s administrative workday is 7:00 a.m. to 5:00 p.m. and the employee travels on a weekend during those hours, this travel time is compensable.
• Emergency Travel from Home to Work: This time can be compensable depending on the circumstances. Interestingly, the Department of Labor takes no position on the compensability of this travel time.

TRAINING TIME AND OVERTIME

Attendance at training sessions, meetings, and lectures must be counted as work activities unless all four of the following criteria are met:

1. Attendance is outside the employee’s regular work hours;
2. Attendance is voluntary;
3. The course is not directly related to the employee’s job; and
4. The employee does not perform any productive work while attending the training session, meeting, or lecture.

Attendance is not voluntary if the employee is led to believe failure to attend would adversely affect their employment.

BREAK TIME AND OVERTIME

Although there’s little case law on the issue of whether breaks are compensable, the U.S. Department of Labor has ruled that if a break or rest period is 20 minutes or less, the time is compensable. Longer breaks, including meal breaks, may be compensable, as well, depending on the circumstances.

ON-CALL TIME AND OVERTIME

Some businesses require employees to remain available at home or on the employer’s premises during meal periods to respond to calls in person or through a telephone or pager. The time spent responding to calls, including time spent at home on the telephone or computer responding to calls or e-mail, might be compensable, depending on:

• the average number of calls the employee responds to during the on-call period;
• the required response time: in other words, the amount of time in which the employee has to be at the work site after being called in;
• whether an employee is subject to discipline for missing or being late to a call-back;
• the extent to which an employee is able to engage in other activities while on-call; and
• the nature of the employee’s occupation (some jobs might require the employee to respond immediately to a situation).

ON-DUTY MEAL PERIODS AND OVERTIME

Department of Labor regulations require that meal periods be counted as compensable work time unless the employee is 'completely relieved from duty for the purposes of eating regular meals.' Thus, employers who impose work-related restrictions on employees during their meal periods, such as answering phones or responding to work- related requests, must pay employees for their meal periods.

Some courts have used another standard: the predominant beneficiary test, which determines whether the employer or the employee benefits more during the meal period. Under this test, employees required to remain on the employer’s premises in a place which isn’t a dining room, or in some other area which isn’t an eating facility, are usually entitled to compensation for their meal periods. In these circumstances, the employer has been found to place substantial restrictions on the employee during the meal period for the employer’s benefit.

WAIVER OF OVERTIME PAY

Can an employer and employee agree to waive overtime pay? No! If the employer doesn’t want employees to work overtime, it must establish and enforce workplace rules prohibiting overtime.

In addition, an employer caught violating the overtime laws can’t avoid back payments by cutting a deal directly with employees. Courts have found that agreements that purport to waive back overtime pay claims are unenforceable unless the Department of Labor supervises them or an attorney represents the employee.

EXEMPTIONS TO FLSA OVERTIME PAY

The FLSA exempts a number of categories of employees from the overtime laws. In some cases, however, state overtime laws cover employees who are exempt from the FLSA. In addition, exemptions are applied on a workweek basis. Employees who perform non-exempt duties in a workweek typically aren’t exempt that week and are entitled to FLSA overtime compensation for overtime worked — regardless of their FLSA status the rest of the year.

There are a few well-established principles regarding exemptions to the Act:

• Employees are presumed to be entitled to overtime pay.
• The employer bears the burden of proving that an employee fits within a claimed exemption.
• Job duties, not job titles, govern whether an exemption applies. Employers often give employees fancy administrative or professional sounding job titles in order to exempt them from overtime pay. The employee’s actual duties determine whether or not an exemption to overtime pay applies.
• Lastly, the exemptions to the overtime exemptions are narrowly construed against the employer and if there’s a reasona