Under the Fair Labor Standards Act (“FLSA”), employers must pay at least a statutory minimum wage for all hours worked and overtime pay at one and one-half times the regular rate of pay for any hours an employee works over forty during the workweek. Section 213(a)(1) exempts from the FLSA’s minimum wage and overtime requirements every “employee employed in a bona fide executive, administrative, or professional capacity . . . or in the capacity of an outside salesman.” These exemptions are often collectively referred to as white-collar exemptions. White-collar exemption employees must generally satisfy specific tests regarding their job duties and be paid a salary of not less than $684 per week.
The white-collar exemptions apply to any business or individual that the FLSA covers. But there are a lot of nuances to these exemptions based on the industry. That is why this article focuses on how white-collar exemptions apply in the hospitality industry—an industry notorious for misclassifying employees.
So, let's take a deep dive into the white-collar exemptions with an eye toward hospitality workers and exemptions for executive, administrative, and professional employees.
Scope of exemptions.
First, let's get this out of the way: job titles, job descriptions, and white-collar status do not determine an employee’s exempt status. Employees are exempt only if they meet the salary and duties requirements.
The white-collar exemptions do not apply to manual laborers or other blue-collar workers who perform work involving operations with their hands, physical skills, and energy. If you are wondering about chefs, I will get to that below.
The exemptions apply from workweek to workweek. Changing an employee's duties or salary might change the employee's status (i.e., exempt one week and nonexempt the following). However, some tests (e.g., the primary duty test explained below) require evaluations that cover a more extended period, so a day-by-day scrutiny of tasks performed would not capture the character of the employee's job.
Salary of at least $684 per week.
To qualify for exemption, employers must pay an employee on a salary basis at a rate of at least $684, exclusive of board, lodging, or other facilities. Being paid on a salary basis means an employee regularly receives a predetermined amount of compensation each pay period on a weekly or less frequent basis.
There is a special rule for highly compensated employees who are paid a total annual compensation of $107,432 or more, which includes at least $684 per week in salary. A highly compensated employee will qualify for exemption if the employee customarily and regularly performs any of the exempt duties or responsibilities of an executive, administrative, or professional employee. In short, a high level of compensation eliminates the need for a detailed analysis of the employee's job duties.
Also, it is possible for employers to pay administrative and professional employees on a fee basis instead of a salary basis. However, the requirements for fee-based payment generally would not arise in a typical restaurant or bar.
As stated above, employees are exempt only if they meet the salary and duties requirements. The FLSA splits the white-collar exemptions into executive, administrative, and professional categories because each category contains a specific primary duty test.
Generally, employees are exempt only if their primary duty is performing exempt work. An employee's primary duty is the principal, main, major, or most important duty the employee performs. The primary duty test is an employee-specific, case-by-case inquiry emphasizing the character of the employee's job. An employee’s primary duty depends on factors including:
The relative importance of the exempt duties compared with other 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.
Regarding the second factor, the amount of time spent performing exempt work is often a helpful guide, but it is not the determining factor. Employees who spend less than half their time performing exempt duties will satisfy the primary duty test if the character of their job supports that conclusion. Employees who spend more than half their time performing exempt work will generally satisfy the primary duty requirement.
Work directly and closely related to the performance of exempt work is itself exempt. Work is directly and closely related to exempt work if it relates to exempt work and contributes to or facilitates the performance of exempt work. It includes menial or physical tasks arising from exempt duties and routine work, without which exempt work cannot be appropriately performed.
To qualify as exempt executives, employees must:
Be compensated on a salary basis at a rate not less than $684 per week;
Have a primary duty of managing the employer’s enterprise or customarily recognized department or subdivision of that enterprise;
Customarily and regularly direct the work of two or more other employees; and
Have the authority to hire or fire other employees or have the decision-maker give their suggestions and recommendations for other employees' hiring, firing, advancement, promotion, or other change of status, particular weight.
Primary duty test: Management
An exempt executive employee’s primary duty must be managing, which includes: interviewing, selecting, and training employees; setting and adjusting employees' rates of pay and hours of work; planning or directing employees' work; maintaining production or sales records for use in supervisions or control; appraising employees' productivity and efficiency to recommend promotions or other status changes; handling employee complaints and grievances; disciplining employees; determining the techniques to be used; apportioning work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked, and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.
A customarily recognized department or subdivision means a recognized subpart within a larger business unit with a permanent status and continuing function. Back-of-house and front-of-house areas are considered customarily recognized departments or subdivisions in a restaurant.
If an employee concurrently (or simultaneously) performs exempt and nonexempt duties, the character of the employee's job determines whether management is the primary duty. Generally, exempt executives decide when to perform nonexempt tasks, remain responsible for the success or failure of business operations while performing nonexempt tasks, and can simultaneously supervise subordinates and perform nonexempt tasks. For example, restaurant managers who perform nonexempt work (e.g., serving customers) would be exempt if their primary duty is managing the restaurant—the manager can direct and supervise other employees' work while performing the nonexempt work. Alternatively, a line cook whose primary duty is to work the grill station remains nonexempt even if one job responsibility is directing other employees' work while the Executive Chef is unavailable.
Supervision test: Customarily and regularly direct the work of two or more other employees.
Customarily and regularly means more often than occasionally, but it does not have to be constant. It includes tasks performed commonly and recurrently every workweek; it does not include isolated or one-time tasks. Thus, whether an employee customarily and regularly directs the work of two or more other employees depends on the facts of each situation.
Two or more other employees means two full-time employees or the equivalent. Full-time generally means 40 or more hours per workweek. So one full-time and two half-time employees are equivalent to two full-time employees. However, a full-time employee who works more than 40 hours per workweek counts as only one full-time employee.
An employer can divide supervisory functions among multiple supervisors. Still, each supervisor must customarily and regularly direct the work of two or more full-time subordinates to be exempt. For example, a back-of-the-house department with five full-time, nonexempt workers may have up to two exempt supervisors if each supervisor customarily and regularly directs the work of two of those workers.
However, the hours worked by a subordinate employee may not be counted or credited more than once for different supervisors. So, if two supervisors share responsibility for supervising the same two employees in the same department, neither supervisor would meet the supervision test. But, a full-time employee who works half of the time for one supervisor and the other half for a different supervisor may be credited as a half-time employee for each supervisor.
Authority test: Power to hire or fire; particular weight.
If an employee can hire or fire other employees, that satisfies the authority test. But what about those supervisors who don't have that level of authority?
Whether an employee’s recommendations are given particular weight depends on whether it is part of the employee's job duties to make such recommendations and how often they are made, requested, or relied upon. For example, a lead server who provides a few recommendations about firing another server that are never followed would not meet the authority test. Generally, an executive's recommendations must pertain to employees the executive customarily and regularly directs or supervises. Thus, a back-of-the-house manager's recommendations about front-of-the-house staff are generally immaterial. Lastly, an employee's suggestions and recommendations may still have particular weight, even if a higher-level manager's recommendation is more important or a higher-level manager makes the ultimate decision.
There are three types of professional exemption, each with its own duties test: learned, creative, and teaching. Teaching does not apply to bars and restaurants, so I will only discuss learned and creative professionals.
Learned Professional Exemption.
To be exempt as a learned professional:
The employee must be compensated at a rate not less than $684 per week;
The employee's primary duty must be performing work that requires advanced knowledge;
The advanced knowledge must be in a field of science or learning; and
The advanced knowledge must be customarily acquired by a prolonged course of specialized instruction.
Primary duty test: Advance knowledge.
The primary duty test for learned professionals has three parts: the employee must perform work requiring advanced knowledge; the advanced knowledge must be in a field of science or learning; and the advanced knowledge must be customarily acquired by a prolonged course of specialized instruction.
Work requiring advanced knowledge means work predominantly intellectual in character and requires the consistent exercise of discretion and judgment. Learned professionals generally use their advanced knowledge to analyze, interpret, or make deductions from varying facts or circumstances. High school does not count as advanced knowledge.
Field of science or learning includes professions of law, medicine, and other similar occupations with a recognized professional status. They can be distinguished from the mechanical or skilled trades.
Customarily acquired by a prolonged course of specialized intellectual instruction restricts the exemption to occupations where specialized academic training is a standard prerequisite for entrance. The best evidence of satisfying this requirement is having the appropriate academic degree. However, customarily means the exemption is available to employees who have substantially the same knowledge and perform substantially the same work as the degreed employee but who obtained the advanced knowledge through a combination of work experience and intellectual instruction. The Regulations give the example of a lawyer who did not attend law school (yes, some states allow this). This exemption does not apply to occupations where most employees acquire skills through experience rather than advanced specialized intellectual instruction.
In the hospitality industry, chefs, such as executive and sous chefs, with a four-year academic degree in a culinary arts program generally meet the duties requirement of the learned professional exemption. The learned professional exemption is unavailable to cooks who perform predominantly routine mental, manual, mechanical, or physical work. Those chefs without a four-year culinary degree would not be eligible for the learned professional exemption because they would have acquired their skill through experience rather than advanced specialized intellectual instruction. But there may be another avenue for exemption for chefs without a four-year academic degree in culinary arts—the creative professional exemption.
Creative Professional Exemption.
To be exempt as a creative professional, the employee must:
Be compensated at a rate not less than $684 per week;
Have a primary duty of performing work requiring invention, imagination, originality, or talent in a recognized artistic or creative endeavor field.
Primary duty test: work in a recognized artistic or creative endeavor field.
An exempt creative professional's primary duty must be to perform work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor, as opposed to routine mental, manual, mechanical, or physical work. The exemption does not apply to work produced by a person with general manual or intellectual ability and training.
Recognized artistic or creative endeavors include music, writing, acting, and the graphic arts.
The requirement of invention, imagination, originality, or talent distinguishes the creative professions from work that primarily depends on intelligence, diligence, and accuracy. The creative exemption depends upon how much invention, imagination, originality, or talent the employee exercises. Actors, musicians, and composers are examples of individuals who generally satisfy these requirements.
The Department of Labor ("DOL") has previously concluded that chefs may qualify as creative professionals to the extent that their primary duty is a creative endeavor, like regularly creating or designing unique dishes and menu items. However, the DOL acknowledges the wide variation in the duties of chefs. The DOL intends that the creative professional exemption extends only to truly original chefs, such as those who work at five-star or gourmet establishments, whose primary duty requires invention, imagination, originality, or talent.
Still, courts have generally been unwilling to hold that chefs fall under the creative professional exemption. The issue is proving that the chef's primary duty requires invention, imagination, originality, or talent. Talent alone does not bring an employee within the exemption. Talent must be used for an innovative and imaginative task.
To be exempt as an administrative employee, an employee must:
Be compensated at a rate not less than $684 per week;
Have a primary duty of performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
Have a primary duty that includes the exercise of discretion and independent judgment concerning matters of significance.
Primary duty test: type of work.
The administrative exemption is the least applicable for most independent restaurants and bars because the primary duty test is hard to satisfy in those settings. First, the work must be office or non-manual work. Second, the work must be directly related to the management or general business operations of the employer or the employer’s customers, meaning work that relates to assisting with the running or services of the business. Collectively, these first and sector factors distinguish administrative work from selling a product in a retail or service establishment or occupations that perform work involving repetitive operations with their hands, physical skill, and energy. Lastly, the work must include the exercise of discretion and independent judgment regarding matters of significance. In general, exercising discretion and independent judgment involves comparing and evaluating possible courses of conduct and acting or deciding after considering the various possibilities. Matters of significance refer to the level of importance or consequence of the work performed.
An example of these types of positions would be a human resources manager. Again, most independent restaurants and bars don’t have these positions that satisfy the administrative exemption.
The last few years have seen an explosion in the number of private lawsuits against employers and increased scrutiny by the DOL. Section 216(b) of the FLSA creates a cause of action against employers who violate the minimum wage and overtime compensation requirements. If, for example, an employer misclassifies a nonexempt employee as exempt, the employer would be liable to the affected employee in the amount of their unpaid minimum wages or unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages. Courts may award a successful plaintiff reasonable attorneys' fees and court costs.
Under the FLSA, employees only qualify for white-collar exemptions if they meet the salary and primary duties requirements. The primary duties for the executive, administrative, and professional exemptions are unique to each specific exemption. Employers must assess the character of each employee's job and compare the job's duties to those outlined for each exemption. Employers must prove that every requirement is met for each employee who is treated as exempt.
The Texas Hospitality and Non-profit Law Center only provides this material for informational purposes. The firm does not intend for this material to constitute legal advice. Nor does this create a client-attorney relationship between the firm and any recipient.