HR Scenario: Is This An Exempt Employee?

HR Scenario: Is This An Exempt Employee?

This article is part of our ongoing HR Scenario series by our National HR Client Service Manager, Kim Schaff, SHRM-SCP, PHR. In each of these articles, Kim will walk you through a real-life HR scenario and break down how this situation should be handled and all the ins and outs of the rules and regulations that impact the scenario.

HR Scenario:

An owner of a mobile home park has employed a resident manager. The owner has indicated that the manager is “exempt.” However this manager is not being paid at least $455/week.

For this scenario, we will say that state law regulating minimum wage states clearly that “managers, assistant managers, and maintenance workers employed and lodged in multi-unit accommodations, including mobile home parks or manufactured dwelling parks” are exempt from the state minimum wage and overtime requirements.

Our resident manager is being compensated with a monthly salary of $1,175.00 plus housing and utilities, but he/she is only expected to work 130 hours per month (30 hours per week).

Response:

Issue #1: State Minimum Wage

For this scenario, Let’s say this state’s minimum wage is $10.00/hour. Under the previously-stated state law, the mobile home park manager is clearly exempt from state minimum wage of $10.00/hour and the state’s overtime requirement.

Issue #2: Is the employee subject to FLSA?

Just because the employee is exempt from state minimum wage and overtime law, that does not mean the employee is exempt from the Fair Labor Standards Act (FLSA) and federal minimum wage and overtime requirements, if the employer is covered by FLSA (which almost all employers are).

Issue #3: Is the employee “exempt” under FLSA?

The law takes the view that, unless an employer can show to the contrary, all employees are subject to wage and hour law protections. This employee may meet the executive exemption under FLSA, if the individual’s primary duty consists of managing the park, they customarily and regularly direct the work of at least two or more full-time employees or their equivalent, AND they have authority to hire and fire.

It is also possible that the resident manager would be administratively exempt if their work involves implementing management policies, carrying out major assignments, and negotiating on behalf of the park owner. In this case, the manager would likely be dealing with utility companies, contractors, or consultants, and protecting the owner’s investment by working with officials to keep the property safe from vandalism, etc.

If the employee falls into a valid “white-collar” exemption category, then the manager must be paid on a salary basis of at least $455 per week, and is not subject to federal overtime laws. Even if the manager is part-time (30 hours/week), the manager must still meet the minimum weekly threshold of $455 per week to be considered exempt from overtime.

Issue #4: The employee may be “non-exempt” under FLSA.

If the resident manager does not fall into a proper FLSA exemption, then the park owner is non-exempt and must make the equivalent of $7.25/hr—the federal minimum wage. In this case, the park owner would have to require accurate time sheets and must also pay overtime, such as when the resident manager is required to answer calls and address tenant complaints after regular business hours.

Issue #5) What about the value of lodging?

Under federal law, if the manager satisfies the requirements to be treated as an exempt employee, the employer receives no particular credit or benefit for providing free or discounted accommodations to the employee. However, if the manager does not satisfy the requirements to be treated as an exempt employee, a portion of the value of the accommodations can be credited against the employer’s minimum wage obligations.

Specifically, the employer may credit the cost of lodging toward the minimum wage requirement if:

  • The lodging is furnished for the benefit of the employee.
  • Is accepted voluntarily and without coercion by the employee.
  • Is customarily furnished by other employers in the same industry.

It is best practice to have a signed employment agreement which states the terms and the compensation for lodging should generally not exceed 2/3 of the ordinary rental value.

Conclusion:

Our resident manager working at an FLSA covered business under the current circumstances should be properly classified as non-exempt. He/she does not meet the minimum FLSA exempt salary threshold of $455 per week due to being part-time, regardless of whether this person meets administrative or executive white collar exemption.

The resident manager should be compensated a minimum hourly rate of $7.25 per hour worked, and compensated under federal overtime regulations. This individual is exempt from state minimum wage and overtime requirements. The property owner can reasonably deduct a portion of the value (2/3 of the ordinary rental value) of the lodging and credit it against the employer’s minimum wage obligation. A written contract is advised.

Alternative:

The property owner can increase the resident manager’s salary to $23,660 per year and not be subject to FLSA minimum wage and overtime requirements if the resident manager properly fits the executive or administrative white-collar exemption. The property owner would not be able to include lodging in the minimum salary compensation for the exempt employee.

NOTE:

California has established specific laws and regulations governing mobile home parks, specifically the 2017 Mobilehome Residency Law and other provisions of law relating to mobile homes, which is 132 pages long! Specifically, it addresses minimum wage, the allowable rent offset amounts, on-call, waiting-time, and stand-by-time, among other issues. 

This scenario is an example and does not reflect specific state laws in other vicinities.

For more information on exempt vs non-exempt employee classification, see our post How Exempt vs. Non-Exempt Classification Works

Sources:

https://www.dol.gov/whd/opinion/FLSA/2006/2006_06_29_23_FLSA.htm
http://www.wagehourinsights.com/2016/06/residence-hall-directors-under-the-new-flsa-exemption-rules/
http://www.lexology.com/library/detail.aspx?g=28a4b485-b917-43a9-bb3d-79719b174e44
http://caselaw.findlaw.com/us-9th-circuit/1480525.html
http://www.callaborlaw.com/entry/wage-and-hour-laws-as-applied-to-resident-managers
https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/ifanexemptemployeerequestsamovefromfull-timetopart-timestatus,cantheemployeradjusttheindividual%E2%80%99ssalarydowntocompensatefort.aspx

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