Payment of Producers Under New Overtime Rule

My last post concerned the exemptions from the overtime payment requirements of the Fair Labor Standards Act (“FLSA”) that will most likely apply to the employees of an insurance agency.  While the job duties of a customer service representative can probably be defined in such a way as to qualify him or her under the administrative exemption, because a producer’s primary job duty is the sale of insurance products that exemption would not be available for a producer.  The only exemption for which a producer who is not a door to door salesperson may qualify is the one for highly compensated employees, but as of December 1, 2016, that will require a producer to earn at least $134,004 a year, of which $47,476 was paid as a salary.

If a producer will not qualify for an exemption from the overtime payment requirements of the FLSA, an agency must decide whether to prohibit the producer from working more than 40 hours in any one work week, so no overtime pay will be required, or pay the producer one and a half times their calculated hourly compensation for each hour worked in excess of 40 in any one work week.  The latter option can get expensive in a hurry, so the question becomes is there a way a producer can be paid for working more than 40 hours in a week that is not as expensive as the traditional way.

The answer to that question is Yes by using what is known as the fluctuating workweek method of payment.  To be able to use that method of payment for any employee, the following requirements must be satisfied:

1. The employer and employee have an understanding that the employee will receive a fixed salary for the hours the employee works in a workweek, regardless of how few or many hours are worked, and payment of that salary is made.
2.  The hours the employee works fluctuate from week to week.
3.  The salary paid is such that in any given week, the employee never receives less than minimum wage pay when the salary is divided by the total hours they work during that week.
4.  The employee receives pay at a rate not less than half the regular pay rate for that week for any hours they work in excess of 40 hours in a workweek.

The financial benefit from using the fluctuating workweek method of payment is that the amount of overtime pay is calculated by dividing the total number of hours worked in any one week by the agreed on fixed salary and then using that hourly rate to calculate the amount of overtime pay due for any hours worked in excess of 40 during that week.  For example, if the fixed salary is $800 per week and an employee works 50 hours during that week, their hourly rate of pay is $16, not $20 which it would be if the employee were being paid a salary of $800 a week for an expected 40 hours of work  The overtime pay rate under the fluctuating workweek method would be $24 ($16 + $8), instead of $30 ($20 + $10), resulting in a savings of $60 ($30 – $24 x 10 hours).  This savings will increase with every extra hour worked because the hourly rate of pay on which the overtime pay rate is calculated will decrease.

The main problem with using the fluctuating workweek method of payment for producers is the requirement that a fixed salary must be agreed on, which will be paid no matter how many hours are worked in any given week, 50 or 30.  The fixed salary requirement will prevent a commission only compensation arrangement, but it could be used for new producers if the agency’s practice is to pay its new producers a guaranteed minimum amount and account for any commissions earned above that with a year-end bonus.  For veteran producers, an agency could agree to pay a fixed salary based on the commissions earned the prior year with a similar year-end bonus for any commissions earned above the salary amount.  In both situations, the salary should be adjusted to account for the expected number of overtime hours, so that the salary and overtime pay are equal to what the salary would have been without taking overtime pay into consideration.

Use of the fluctuating workweek method of payment will not work for all agencies or all producers, but it is an option that should be considered when an agency is determining how it will pay its producers and other employees to comply with the new overtime rule’s requirements.

New Overtime Rule – Who Is Exempt?

Judging by the reaction of the audience at a presentation on the new overtime rule I made a couple of weeks ago, that rule is going to create significant problems for independent insurance agencies.  I barely had time to introduce myself before the first question came and they just kept coming.  The focus of many of the questions was whether customer service representatives and producers could be exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).

I addressed this issue in a post in early 2015.  At that time, the required minimum salary for an employee to be considered exempt was only $455 per week, or $23,660 per year.  I say only because as those of you who have followed my blog posts on the new overtime rule know, the required minimum salary will more than double to $913 a week, or $47,476 a year, on December 1, 2016.  That will significantly increase the financial cost of treating an employee as exempt, which cost should only be incurred if a particular employee can satisfy the duties tests for exempt employees.  If not, the employer is wasting their money and will need to look at other options.  (Click here for a more recent post on what those options are.)  

In my 2015 post, I discussed the most likely exemptions that could apply to customer service representatives and producers.  What was said in that post still applies, with one exception.  The commissioned sales person exemption will not apply to producers or any other employee of an independent insurance agency because that exemption only applies to employees of a “retail sales” business, and the U.S. Department of Labor (“USDOL”) has issued regulations that state businesses that sell insurance are not engaged in “retail sales” for purposes of that exemption.

As I told my audience, that leaves the administrative exemption as the most likely one for customer service representatives and the highly compensated employee exemption as the only one available for producers, unless they operate as door to door sales persons who have no office and meet with their customers only at the customers’ home or place of business. That is not how most producers perform their duties.  Producers will not qualify for the administrative exemption because the USDOL has ruled that an employee whose primary duty is the selling of a product or service cannot qualify for that exemption.  It will be very difficult to argue that a producer’s primary duty is not the sale of insurance products, especially if their main source of compensation is commissions from the sale of such products.  

Exceptions to the above general statements are possible because whether a particular employee is exempt from the overtime pay requirements of the FLSA is a case by case determination that is dependent on the duties actually performed by that employee. However, I told my audience that unless their producers were earning at least $134,004 a year, of which $47,476 was paid as a salary (highly compensated employee exemption), as of December 1, 2016, they would probably be required to pay their producers overtime for any hours worked in excess of 40 in any one work week.  That is true today for any producer who is not making the current threshold amount of $100,000 a year, of which at least $23,660 is paid as a salary.

As with any law, the fact I have never heard of a producer suing an agency for overtime pay does not mean that producers who don’t qualify for the highly compensated employee or outside sales exemptions cannot do so.  It just means no one has tried to do so for any number of reasons.  As explained in my 2015 post, the consequences of not paying required overtime to an employee can be severe and employees have an incentive to file such lawsuits.

For more detailed information on this subject, see the updated question and answer white paper prepared by IIABA and attend its seminar on this subject that is scheduled to begin at 2 p.m. on August 30, 2016.     

The New Overtime Rule – What You Can Do to Comply

My last post was about the requirements of the new rule for the payment of exempt employees.  This post will focus on the options available to an employer to comply with those requirements and the information needed to decide which option works best for each affected employee.  Almost every payroll service company has materials on this topic.  One of the best I have seen can be found here and it includes an online calculator to aid the employer in determining the financial impact of the available options.  For those who want a more focused presentation on the effect of the new rule on insurance agencies, the IIABA will have a free webinar on that subject on June 22, 2016 beginning at 3 p.m. EDT.

The new overtime rule will affect only those employees who are being treated as exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).  If an employee is being paid a salary and is not paid anything extra if they work more than 40 hours in any one week, including time spent responding to e-mails or telephone calls or meeting with customers outside of normal working hours, they are effectively being treated as exempt employees.  If you have any such employees, beginning December 1, 2016, they must be paid a minimum salary of $913 a week, or $47,476 a year, and meet the other requirements of a recognized exemption to the overtime pay rules. (Click here for a good explanation of those other requirements.)

If an employee does not meet the requirements for an exemption from the overtime pay rules, they can still be paid on a salary basis, but they must be paid one and a half times their salaried hourly rate for any hour worked in excess of 40 in any one work week.  For such employees, an adjustment in their salary may be necessary to avoid an unsustainable increase in their total compensation once overtime pay is included. Similarly, if an employee does meet the requirements for an exemption from the overtime pay rules, but the employer cannot afford to increase their salary to meet the new minimum required, that employee will have to be paid at the overtime rate for any hours worked in excess of 40 in any one work week.  For such employees, the employer will have to decide if it can afford the increase in total compensation that will result.  If not, the employer can either change the employee to an hourly rate of pay or adjust the amount of salary paid, so that in either instance the employee will end up being paid the same amount of compensation as before after taking into account their expected overtime pay.

In both situations described above, the employer also has the option of forbidding the employee from working more than 40 hours in any one week.  In addition to being difficult to enforce, given the current emphasis on value added customer service, which usually includes responding to e-mails and telephone calls or meeting with customers outside of normal working hours, this option may not be a practical one for many agency owners.  In any event, those owners and other employers will have to begin tracking the hours worked of both types of employees, if they have not already been doing so.  Without such tracking, an employer is at the mercy of any employee who claims they worked more than 40 hours in any one week and demands to be paid overtime pay for those hours.  The burden is on the employer to prove such a claim to be untrue and without a good system for tracking the hours worked by its employees, an employer will be unable to meet that burden.

The bad news is that employers who have employees they have treated as exempt and not paid a salary of at least $47,476 a year have a lot of work to do to decide how best to respond to the new overtime rule’s requirements with respect to those employees. The good news is they until December 1, 2016 to do so.

The New Overtime Rule – What You Need to Know

Last July, I wrote a post about a new rule for the payment of overtime that had recently been proposed by the U.S. Department of Labor (“USDOL”).  That proposed rule was made final by the USDOL on May 23, 2016, with its formal publication in the Federal Register.  The final rule differs in several ways from the proposed rule that was described in my earlier post.  Those differences concern the amount of the minimum salary that must be paid before an employee can be considered exempt from the overtime pay rules, how often that minimum salary amount will be changed, the standard for determining the new minimum salary amount, the use of non-discretionary bonuses to satisfy part of the minimum salary amount, and the effective date of the new minimum salary amount requirement. (Click here for an IIABA summary of the new rule and how it applies to insurance agencies.)

In order:

1.  To be considered exempt from the overtime pay rules, an employee must be paid a salary of at least $913 a week, or $47,476 a year.  Those numbers under the proposed rule were $921 a week and $47,892 a year.  Not much of a difference, but every dollar counts.  It is important to remember that paying the required minimum salary does not mean an employee is exempt from the overtime rules. To be exempt from those rules, an employee must be paid the required minimum salary and satisfy the other requirements of a recognized exemption from those rules.  The three exemptions that would most likely apply to employees of an insurance agency are the administrative, executive, and outside sale exemptions.  I discussed two of these exemptions as they might apply to insurance agency employees in a earlier post.  It turns out that my suggestion in that post that the retail sales exemption may be used for producers who are paid mostly on commission is not going to work, as the USDOL has stated in the regulations adopted for that exemption that insurance is not considered to be a retail business for purposes of that exemption.  I find that conclusion to be puzzling given the explanation for what is such a business in the regulations.

2.  The required minimum salary will be adjusted every three years, instead of every year, with the first such adjustment to occur on January 1, 2020 and then on January 1 every three years thereafter.

3.  The required minimum salary will be set using the 40th percentile of full-time salaried workers in the lowest wage Census region, which at this time is the South/Southeastern U.S.  The proposed standard was the 40th percentile of full-time salaried workers in the U.S.  Under the adopted standard, the required minimum salary is projected to rise to over $51,000 on January 1, 2020.  The USDOL will announce the new minimum salary amount 150 days before that date.

4.  The payment of non-discretionary bonuses, incentive payments, and commissions can be used to satisfy up to 10% of the required minimum salary amount, if those payments are made at least quarterly.  This is a totally new rule.  The USDOL considers individual or group production bonuses and bonuses for quality and accuracy of work to be non-discretionary.  The final rule also permits a catch up payment to be made in the pay period immediately following the end of a calendar quarter, if the salary paid to the employee during that quarter was less than 100%, but at least 90% of the required minimum amount. This will give some flexibility to employers who choose to use bonuses, incentive payments, or commissions to pay their exempt employees.

5.  The new rule takes effect on December 1, 2016, instead of 60 days after its publication, so employers have more time to decide how they will respond to the new requirements.

What options are available to employers to satisfy the new requirements will be the subject of my next post.

 

 

 

Can An Agent Collect a Fee For Assisting With the Purchase of Health Insurance?

In the past couple of months, the above question has been asked by more than one caller to the Free Legal Service program that I run for the Independent Insurance Agents of Georgia.  Some insurance companies have stopped paying commissions on health insurance policies, while others have drastically reduced the amount of commissions paid. These changes have been made, at least in part, in response to the provision in the Affordable Care Act that requires an insurance company to spend at least 80% (for individual and small groups) or 85% (for large groups) of the premiums they collect on claims payments and “health care quality improvement.”  If they don’t meet those targets, the company has to issue rebates to its insureds.

The problem for insurance agents is that commissions have been deemed to be included in the 20% and 15% of premiums collected that can be spent on administrative expenses. This problem was the subject of a breakfast briefing at last week’s IIABA Legislative Conference given by South Carolina Senator Tim Scott.  Senator Scott urged those in attendance to speak to their elected representatives about two bipartisan bills currently pending in Congress that would specifically exempt commissions paid to agents from the above limitations on administrative expenses.  Unfortunately, those bills like many other bipartisan efforts have been caught up in the general gridlock that now exists.

In the meantime, Georgia agents have called me to find out if they can charge a fee to the insured for assisting them with obtaining a health insurance policy.  The short answer is Yes, if certain conditions are met, but there is a large exception to that answer.  With respect to personal lines health insurance, an agent must have a life, accident, and sickness counselor’s license and cannot also receive a commission from the insurance company.  Thus, the policy in question must be one that either can only be issued without the payment of a commission or the issuance of which without the payment of a commission has been approved by the Insurance Commissioner in a rate filing, rating plan, or rating system.  If certain disclosure and consent requirements are met, an agent can receive both a fee from the insured and a commission from the insurance company for the placement of a group health insurance policy. (Click here for an article I have written on this subject.)

The Georgia Insurance Commissioner’s Office is trying to make it easier for agents to get the necessary counselor’s license.  It has proposed a regulation that will create a new type of counselor’s license to be known as a Limited Health Counselor License, because it covers only accident and sickness insurance.  This license will take the place of the Limited Group Health Counselor license and will cover counseling services provided in connection with the purchase of both individual and group health insurance policies.  Any agent who has held an accident and sickness license for five or more years or who has any of the following designations will not have to take an examination to get this new counselor license: CIC, CLU, FLMI, REBC or RHU.

The large exception to my above Yes answer concerns individual health insurance policies obtained through the insurance marketplace exchanges created under the Affordable Care Act.  Although they are not crystal clear, the regulations that govern the operation of those exchanges prohibit charging the potential insured for assisting them in obtaining a policy on the exchange. Those regulations specifically prohibit Navigators from charging a fee to the potential insured for providing help with the marketplace exchange and state that any “non-navigators” who give such assistance are subject to the same prohibition.  The regulations contemplate that any compensation received by agents and brokers for such services will be paid in the form of a commission by the insurance company that issues the policy obtained through the marketplace exchange.

Apparently, the people who wrote the above regulations were not the same as those who decided that commissions paid to agents are administrative expenses.  Not the first time that one government hand did not know or consider what the other was doing.

Can an Agent Be Paid a Fee for a Personal Lines Health Insurance Policy?

In the past couple of weeks, I have received telephone calls through the IIAG Free Legal Service Program that I run in which I have been asked the above question.  My general answer is Yes, if certain conditions are met, but there is one large exception that I will discuss below.  Those conditions are (i) the agent must have a counselor’s license for life, accident, and sickness insurance and (2) ) the insurance being placed can only be issued without the payment of a commission or the issuance of such insurance without the payment of a commission has been approved by the Insurance Commissioner in a rate filing, rating plan, or rating system.

The above questions were prompted by the decision of many health insurance companies to stop paying any commissions on individual and family health insurance polices.  A fact that has gotten the attention of at least six Georgia legislators.  Representatives Shaw Blackmon, John Meadows, Bubber Epps, Trey Rhodes, Richard Smith, and Chuck Efstration have co-sponsored a bill in the House of Representatives, HB 838, that will mandate the payment of at least a 5% commission for the sale of a group health plan by an agent and at least a 4% commission for the sale of an individual health plan.  These minimum commissions would be required for each renewal of such a plan as long as the agent “reviews coverage and provides ongoing customer service for such plan.”

HB 838 was passed by the House of Representatives on February 24, 2016, but has sat in a Senate committee since then.  The bill has two exceptions to the requirement to pay a minimum commission on the sale of health plans.  No commission would be owed for the sale of an individual health plan during a special enrollment period or for the sale or renewal of a group health plan to an employer who has “more than 50 bona fide employees on at least half of its working days.”

The above exceptions may have something to do with the regulations that govern Obamacare, which leads me to the large exception to my general Yes answer to the question posed in the title of this post.  Although not crystal clear on this point, those regulations seem to prohibit agents from charging a potential insured for services related to assisting the insured in obtaining a health insurance plan through a marketplace exchange that is run by the federal government, which is the case in Georgia.  Those regulations contemplate that any compensation received by agents for such services will be paid in the form of a commission by the insurance company that issues the policy obtained through the federal marketplace exchange.  The regulations specifically prohibit Navigators from charging a fee to the potential insured for providing help with the federal marketplace exchange and state that any “non-navigators” who give such assistance are subject to the same prohibition.

Even if HB 838 is passed by the Senate and signed by the Governor, the above federal regulations will take precedence over any contrary state law.  It appears the best hope for agents who want to help their customers with obtaining health insurance plans through the federal marketplace exchange will be to amend the provision of Obamacare that lumps in the commissions paid to agents with other administrative costs of the health insurance companies.  There are bills pending in Congress that do this, but unfortunately they do not seem to be getting anywhere.

 

 

What Businesses Does the Fair Labor Standards Act Cover?

My posts during the past two weeks have been about the proposed new salary standard for the administrative and executive exemptions from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”) and the issuance of an Administrator’s Interpretation by the federal agency responsible for enforcing the FLSA of what is required for a worker to be properly classified as an independent contractor.  In both instances, the news was not good for employers who are looking to keep their labor costs down.  In the business section of the July 19 edition of the AJC, there was a story about the impact on Georgia employers of the proposed new salary standard.   The spokesperson for the Georgia Retail Association was quoted as estimating the new standard would affect 53,100 employees in the retail and restaurant industry and according to the story’s author, potentially another 100,000 employees in other Georgia industries could be affected if the national estimates of employees affected were applied proportionally to Georgia.

Those are impressive numbers, but what caught my eye was the statement in the story that, “Overtime pay is not required of companies with revenue of less than $500,000, and the new rules would not change that.”  If correct, that would let many smaller Georgia employers off the hook as far as the proposed new salary standard and the independent contractor issue were concerned.  Unfortunately, that statement is not completely accurate. I would have to give it a “Half True” on the AJC’s politifact meter.

The FLSA’s requirements apply to any employee “who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce.”  An employee is engaged in commerce if they perform any services that have anything to do with “trade, commerce, transportation, transmission, or communication among the several States or between any State and any place outside thereof.”  For insurance agencies and any other business, this would cover any employee who communicated with anyone outside the state of Georgia in any way (telephone, e-mail, text, telefax) while performing services on behalf of the business.  In today’s economy, that would include most of the employees of an insurance agency.

Strictly speaking, if an insurance agency or any other business had one or more employees who did not “engage in commerce” (e.g., a janitor or other cleaning person) as part of the services they performed, those employees would not have to be paid the minimum wage or overtime pay.  This because the FLSA is based on the power of Congress to regulate commerce between and among the states and with foreign countries.  It has no power to regulate persons or activities that do not in some way affect interstate or foreign commerce.  Back in 1938 when the FLSA was first adopted, there were many employees of businesses that “engaged in commerce” but whose duties had nothing to do with such commerce.  To reach those employees of such businesses, the FLSA was made applicable to all the employees of any business that had at least some of its employees “engaged in commerce or in the production of goods for commerce” and that had a specified minimum amount of annual revenue.  Today, that specified minimum amount of revenue is $500,000.00.

So any business that has employees who are not “engaged in commerce” and has gross annual revenue of less than $500,000 does not have to pay such employees the minimum wage or overtime pay.  However, any such business should be prepared to prove that such employees are exempt to the U.S. Department of Labor if they choose not to pay them in accordance with the FLSA’s requirements.

Department of Labor Goes After Independent Contractors

A little over a week after issuing its Notice of Rulemaking that will result in more than doubling the minimum salary that must be paid to an employee for them to be eligible for the administrative or executive exemption from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”)(click here for my blog post on this subject), the Administrator of the Wage and Hour Division of the U.S. Department of Labor (“USDOL”) issued an Administrator’s Interpretation that focused on what workers would be considered employees for purposes of coverage by the FLSA.   In essence, the USDOL will now consider any worker who is “economically dependent” on their employer to be an employee, regardless of what label the employer and worker have placed on their relationship.  The main target of this Administrator’s Interpretation is those workers who are being treated by their employers as independent contractors.

That Interpretation discusses the six factors that will be used by the USDOL to decide whether a worker is “economically dependent” on their employer.  Although not identical, those six factors are very similar to the factors used by the IRS to make the same determination for tax purposes. What can happen to an employer if the IRS determines that a worker it has treated as an independent contractor is really an employee is discussed in an article that I wrote about this subject for an IIAG publication.  That article also applies the IRS factors to a typical agency/producer relationship to see what the likely outcome would be if an agency attempted to treat its producers as independent contractors. The result was not a good one for the agency.

The same result is likely using the six factors identified in the USDOL Administrator’s Interpretation, especially since throughout that Interpretation the statement is made that no one of those six factors is more important than the other and they are not to be mechanically applied (i.e., a majority of them one way or the other will not necessarily answer the question).  Instead, the focus will stay on whether the worker in question is “economically dependent” on their employer.  The Interpretation analyzes the six factors in some detail and gives examples of how they would indicate employee or independent contractor status.

My take on this analysis is that if a worker performs services for only one employer and does not incur significant expenses in doing so for which there is no reimbursement from the employer, the USDOL will consider that worker to be an employee for purposes of the FLSA and thus, entitled to overtime pay for any hours worked in excess of 40 in any one work week, unless they qualify for an exemption.  The employer in that situation would be faced with having to pay overtime for any excess hours worked during the previous three years and unless the employer had kept track of the number of hours worked by the “independent contractor”, it would be stuck with whatever number the worker provided.

In addition, as part of its misclassification initiative, the USDOL would report its finding to the IRS and the taxing authorities of those states with which it has memorandums of understanding for action by them.  Fortunately for Georgia employers, the USDOL does not have a memorandum of understanding with the Georgia Department of Revenue, at least not yet.  Agency and other business owners should carefully review the Administrator’s Interpretation to make sure that any independent contractor relationships they may have will pass the test of economic independence.

 

Avoiding the Payment of Overtime is About to Get Much More Expensive

In a blog post this past March about which employees must be paid overtime for working more that 40 hours in any one work week, I mentioned that President Obama had directed the U.S. Department of Labor (the “USDOL”) to review the exemptions from the overtime pay requirement and that most knowledgeable commentators expected the minimum salary requirement for the two main exemptions, administrative and executive employees, to be increased significantly.  Last week, we found out just how significant that increase was going to be.  On July 6, the USDOL issued a Notice of Proposed Rulemaking in which it proposed raising the minimum salary that must be paid to a worker before they could be an exempt administrative or executive employee from $455 a week to $921 a week.  That would result in an annual salary increase from $23,660 to $47,892, more than double.

Not only would the annual salary required for a worker to qualify as an exempt administrative or executive employee more than double immediately, it would continue to rise over time automatically.  The USDOL’s proposed new rule would link the minimum required salary to the 40th percentile of weekly earnings for full-time salaried workers.  As the amount of salary earned by that percentile of workers increased, so would the required minimum salary for exempt administrative and executive employees.  The USDOL estimates that doing this would increase the required minimum salary to a little over $50,000 in 2016.

The proposed rule does not change any of the other requirements for the administrative and executive exemptions, but it requests comments on whether and how those requirements might be changed.  The period for making such comments and comments on other aspects of the proposed rule expires on September 4, 2015.  After that, it will be up to the USDOL to review the comments submitted and then propose a final rule.  There is no need for action by Congress to make the final rule effective.  Most commentators expect a final rule to become effective sometime in late 2015 or early 2016.

What this means for agency and other business owners is that if any of your employees have been classified as exempt from the overtime pay requirement as an administrative or executive employee, they will have to be paid at least $921 a week, or $970 a week depending on when the new rule becomes final, to remain exempt from that  requirement.   Any of my readers who have such employees should begin planning now for any necessary pay increases or changes to their jobs to reduce the hours worked below 40 in any one work week, if it will not be feasible to meet the new minimum salary requirements.

 

Which Agency Employees Can Be Exempt Employees for Overtime Pay Purposes?

In last week’s post, I mentioned the concept of exempt and nonexempt employees and provided a brief description of what makes an employee exempt from the requirement under the Fair Labor Standards Act (“FLSA”) that employees be paid extra compensation for any work done in excess of 40 hours per week.  This subject is an important one, as the misclassification of an employee as being exempt when in fact they are not can be very costly to the employer, as explained later in this post.

A few weeks ago, I listened to a webinar that focused on whether certain employees of insurance agencies could be classified as exempt employees.  In particular, what it would take for customer service representatives, or account executives, and producers to be classified as exempt employees.  The presenter discussed in some detail the two main exempt categories that may apply to the former type of employees, known as the executive and administrative employee exemptions.  As noted in last week’s post, at this time, to qualify for either exemption an employee must be paid on a fixed salary basis in an amount that equals at least $455 per week ($23,660 per year) and that salary cannot be reduced based on the quality or quantity of the work performed by the employee during any one work week.

I say at this time because, at the direction of President Obama, the Department of Labor has been reviewing those and the other exemptions from the overtime pay requirement and is expected to release updated regulations for them sometime this Spring. Most knowledgeable commentators expect the minimum salary requirement for the administrative and executive exemptions to be increased significantly.

The most likely exemption for customer service representatives would be the administrative exemption, which requires that the employee’s primary duty 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 include the “exercise of discretion and independent judgment with respect to matters of significance” to the employer’s business.  Such employees can engage in some sales activity on behalf of the employer, but that activity cannot be their primary duty. (Click here for a more detailed explanation of the requirements of the administrative exemption.)

For producers, the most likely exemption is one for outside sales persons for the reasons discussed in a 2009 opinion by the Wage and Hour Division of the Department of Labor that focused on life insurance producers, but the language of which would apply equally to property and casualty or health insurance producers.  That exemption requires the employee’s primary duty to be the making of sales or the obtaining of orders for services and they must “customarily and regularly” perform that duty outside of the employer’s place of business, which for this purpose means at the home or office of the customer or potential customer. (Click here for a more detailed explanation of the outside sales person exemption.)

If an agency’s producers don’t meet the second part of the outside sales person exemption, it is possible that they can meet what is known as the commissioned sales person exemption.  That exemption requires that the employee be paid at a rate in excess of the overtime pay rate (at this time $10.88) for every hour worked and that more than half of their total compensation be from commissions. (Click here for a more detailed explanation of the commissioned sales person exemption.)

An employee who was not paid overtime compensation when they should have been has the right to sue the employer in federal court to recover the extra compensation they should have been paid for up to three years before the lawsuit is filed.  In addition, if the employee convinces the court that the employer willfully violated the FLSA, they can receive liquidated damages up to double the amount of extra compensation they should have been paid.  Finally, a successful employee is entitled to an award for the attorney fees and other litigation expenses incurred by them, which award can sometimes be far higher than the amount of extra compensation the employee recovers.  Last year, an employee in Georgia who was awarded a little over $6,500 in extra compensation, also received an attorney fees award of over $173,000.00.  It is easy to see why lawsuits for unpaid overtime compensation are the most frequently filed employment related lawsuits in Georgia and elsewhere.