Where to draw the line on who is or isn’t an exempt employee isn’t always clear. One company just got hit hard for making the wrong call. In a recent ruling, Family Dollar Stores was ordered to pay more than $35 million in back overtime pay and damages to more than 1400 current and former store managers.

The Eleventh Circuit Court of Appeals said that the managers, who were routinely expected to put in shifts totally 60-70 hour per week, were wrongly treated as executive employees exempt from OT.

According to the appeals court, the managers were non-exempt for three main reasons:

1. They spent 80-90% of their time performing non-exempt labor (running cash registers, stocking shelves, etc.)
2. Non-exempt tasks were considered an “essential” part of the managers’ jobs, as opposed to “incidental.”
3. Managers had relatively little freedom. Instead, district managers handled most managerial decisions, such as pricing, choosing inventory, etc.
4. The average manager’s “exempt” salary was barely more than the average assistant manager’s salary.

Cite: Morgan v. Family Dollar Stores, Inc.; 11th Circuit Ct. of Appeals, 12/18/08.

Tags: Court rulings, Employment tax, Enforcement, Hiring & training staff, Payroll, Penalties, Tax compliance