Can I Be Held Personally Liable for Misclassifying an Employee as Exempt?

Dear Rita: I am the administrative manager for a small nonprofit. The executive director (ED) recently hired a new administrative assistant (AA) and wants to classify her as exempt to avoid paying her overtime when she attends evening board meetings and fundraising events. This new AA's main duties are typing board agendas, ordering office supplies, and serving as the general "go-to" person for out-of-office errands.

I know the new AA should be classified as non-exempt and receive overtime pay. The Executive Director says that if we pay her a salary and she agrees to being exempt, she can be exempt. I've given up trying to convince the ED, but I've heard that management can be held individually liable for non-payment of required overtime. Should I be worried about being held personally liable? -- Fearful

Dear Fearful: You may not have too much to worry about but your boss sure does. To protect yourself and your organization I recommend insisting that you and your ED meet with an employment attorney to discuss this issue fully while protected under the attorney-client privilege.

Federal law does allow for individuals (not just organizations) to be held liable for intentionally avoiding paying employee wages, including overtime payments. On a state level, some states allow for individuals to be held liable while others do not. For example, New York courts have found individual managers liable for intentionally avoiding paying overtime while California courts generally have held that managerial employees cannot be held personally liable under state law for wage and hour decisions they make on behalf of their employer.

But the federal Fair Labor Standards Act (FLSA) applies to employers in all 50 states. The FLSA imposes severe penalties for violations. The risks your boss is taking on your organization's behalf and on her own behalf include:

  • Unpaid wages (2 - 3 years of back wages)
  • Fines ($10,000)
  • Imprisonment (6 months)
  • Liquidated damages (2 times the amount owed to the employee)
  • Attorney's fees and costs
  • Individual liability

This is serious stuff and requires an understanding of the FLSA.

Fair Labor Standards Act

The FLSA was first enacted as part of the New Deal in 1938. The FLSA requires that most employees be paid at least a minimum wage (currently $7.25 per hour under the FLSA) and mandates that all non-exempt employees be paid at least one and one-half times their regular rate of pay for all hours worked over forty in a work week. The law regulating employers is enforced by the US Department of Labor and applies to nonexempt employees. For that reason, it is important to properly classify an employee as exempt or nonexempt (see www.dol.gov).

Unfortunately, the definition of "employer" under the FLSA is very broad and has been held to include executives of the company. Under the FLSA, an "employer" is any person "acting directly or indirectly in the interest of an employer in relation to an employee." Whether an individual qualifies as an "employer" is decided on a case-by-case basis, and the factors considered might vary somewhat from one state to another, but federal law is clear that the more control an individual has over the employment relationship, the more likely it is that he or she will be deemed an "employer."

Courts have found that an "employer" includes managers with control over payroll decisions and individual supervisors who have day-to-day control over the business of the company. Thus, if a supervisor makes direct decisions about whether to pay an employee overtime, that supervisor may be incurring individual liability. Liability has been found, for example, where the management employee had the authority to hire and fire, had budgetary authority, had significant control over day-to-day activities including determination of salaries, and supervised others who directly controlled employees. In plain English, this means that the individual who sets the terms and conditions of employment can be sued individually under the FLSA.

Employees cannot agree to give up their right to overtime pay

The overtime provisions of the FLSA are mandatory and cannot be waived by the employee. As a result, an employer cannot refuse to pay overtime based upon a policy or practice, and an employee may not agree to be exempt or offer to work for less than time and one-half his or her normal rate of pay. Also, an employer cannot generally avoid liability for overtime payments by claiming that the overtime work was not authorized. If it is worked, it is owed. The employer can, however, discipline employees for working unauthorized overtime, it just can't refuse to pay for the work.

Employees cannot volunteer to give up their right to overtime pay

An employer cannot circumvent the FLSA's requirement to pay overtime by asking an employee to "volunteer" to perform additional work. If an employee "volunteers" and performs the same type of service that he/she performs on the job, the employee can be entitled to overtime pay.

Individuals can be held personally liable for organizational FLSA violations

The bottom line is that individuals can be personally liable for unpaid wages and other remedies under the FLSA and possibly also under state law. An individual's own assets can be used to pay penalties for violations. It's understandably critical to train managers (including your boss) on the ins and out of the FLSA. As an employer, make sure you document the rationale for classifying an employee as exempt, and err on the side of paying overtime (e.g., pay employees' wages, including overtime, for volunteer work that is the same or similar to regular job duties). Finally, develop procedures or mechanisms to monitor wage and hour practices at your organization to prevent violations of the Fair Labor Standards Act.

Pamela Fyfe, J.D. is a Labor and Employment Risk Manager for the Nonprofits Insurance Alliance Group. She is an attorney who has practiced employment law for 25 years -- representing management in wrongful termination, discrimination and sexual harassment cases. Her current job involves advising nonprofits with D&O insurance about employment issues -- before they are sued -- to help keep them out of court.

See also in Blue Avocado:

Comments (5)

  • Anonymous

    As a nonexempt employee, couldn't this AA just have her hours switched when she has evening work? If she normally works 8-5, couldn't she just work 12-9 to cover the evening board meeting?

    Apr 26, 2011
  • As long she gets paid her hourly rate for that time it is fair

    Jun 13, 2017
  • Anonymous

    That's what I wondered. Since the operative factor is the 40 hours per week--not the time of day those hours are worked--simply arranging the AA's hours to include the evening Board meetings would solve the problem.

    If, however, the ED insists on overriding "Fearful" and Legal, the ED should be required to put in writing that the decision was his and made over the protests of F & L--and if he won't do this, they should document by memo that this was the case.

    Apr 26, 2011
  • Anonymous

    Is there a web site that can give us the current definition of "exempt" vs non-exempt?
    I have heard that it changed recently in CA but am not sure where to find out whether my managers who supervise less than two staff, is salaried, receives health and retirement benefits, and works 40 hrs a week is exempt or non-exempt. All of my managers are like this.

    Any thoughts? Suggestions?

    Thanks!!

    Apr 27, 2011
  • Anonymous

    The Department of Labor has an excellent site to assist in understanding the difference between exempt and nonexempt employees.

    http://www.dol.gov/elaws/esa/flsa/overtime/menu.htm

    To qualify for the administrative employee exemption, 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.

    In this case, it seems the Administrative Assistant (AA) meets the first two tests (salary basis and primary duty). The real question is whether they meet the third test of "primary duty includes the exercise of discretion and independent judgment with respect to matters of significance." Primary duty in this context doesn't just mean amount of time spent. “Primary duty” means the principal, main, major or most important duty that the employee performs.

    If this person's primary duties really are "typing board agendas, ordering office supplies, and serving as the general "go-to" person for out-of-office errands" then they likely are not exempt but I would wonder why this person is racking up overtime hours attending "evening board meetings and fundraising events." It would be important to know what duties the person is performing at these meetings/events, how frequently and whether they are the "most important" duty the employee performs. Some executive assistant jobs are very high level positions that would certainly meet the exempt criteria for discretion and judgment.

    It is not clear to me that we have enough information to know that Fearful's boss "sure does" have something to worry about. Obviously the potential is there in any classification decision, but it is important to carefully analyze the full range of duties performed by an employee to see whether they fit within an exempt category.

    Apr 27, 2011

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