As if oil and gas companies didn’t already have enough to worry about, the U.S. Department of Labor’s wage and hour compliance initiative has targeted the oil and gas industry. Recently, numerous Texas-based oilfield services companies have been audited or sued, with several resulting in multi-million dollar payouts to employees misclassified as exempt under the Fair Labor Standards Act. In light of the increased enforcement efforts, we discuss several misconceptions about exemption status and overtime pay. 

Who’s Actually Exempt?

Under the FLSA, employees are presumed to be non-exempt, unless a specific exemption applies. Non-exempt employees are entitled to at least the federal minimum wage of $7.25 per hour and overtime pay (one and one-half times their regular rate of pay) for any hours worked over 40 hours in a week. Certain individuals are exempt from the minimum wage and overtime requirements of the FLSA if they are employed as executive, administrative, professional, outside sales, or certain computer employees. The FLSA also exempts certain “highly-compensated” employees who are paid more than $100,000 a year and perform certain duties.

Common Misconceptions

Particularly in the energy industry, companies oftentimes have the following misconceptions about exemption status and overtime pay:

If employees are paid a salary, they are automatically exempt. Simply paying a salary does not automatically mean the employee is not eligible to receive overtime. The employee must also perform certain duties to be exempt. An employee’s job title is relevant when determining exempt status. Exempt status depends on the salary-basis test and an employee’s job duties. A job title is not outcome determinative when it comes to determining exempt status. If an employee makes over $100,000, he or she is automatically exempt. In addition to earning $100,000 per year, to qualify for the highly-compensated exemption, the employee must also perform non-manual or office work and perform certain exempt duties. Our competitors classify the position as exempt. Even though competitors may classify certain positions as exempt, if your employees do not meet the salary and job basis test, they should be considered non-exempt employees. Once exempt, always exempt. While a certain position may start off as exempt, the job duties may change over time. Because exemption status can change, it’s important for companies to conduct regular internal exemption audits. A non-discretionary incentive bonus does not have to be included in any overtime calculation. All non-discretionary bonuses, including incentive bonuses, should be included in an employee’s regular rate of pay when calculating overtime.

What Can You Do?

When it comes to exemption status, there are many traps for the unwary. It’s important to be proactive in evaluating exemption status before the DOL conducts its own investigation into your workers or a misclassification lawsuit is filed against your company. And remember, avoid potential liability by following the law, not the practices of your competitors. Of course, don’t forget that the DOL has issued proposed overtime rules, which will likely have an impact on your exempt and non-exempt employees once they become effective.