Respondents*

At first glance, the definitions of "nonexempt employee" and "exempt employee" seem simple and straight forward. However, the regulations relating to the placement of positions into the correct classification are quite complex. Terminology is often open to differing interpretations. As a result, both employers and employees often do not understand the distinction between the two classifications. The County's Personnel Rules and Regulations manual does not explain these classifications; nor does the Administrative Policy Manual. Partially agree. The regulations which govern the employer's ability to "exempt" positions/employees from overtime pay provisions are complex. The FLSA is a federal labor law that establishes overtime pay standards affecting employees in the private sector and in federal, state, and local governments. The FLSA is one of many complex federal and state employment-related regulations. The Personnel Rules and Regulations (PRR) and Administrative Policy Manual, by intent, do not attempt to summarize or synthesize these complex and changing laws. The fact that these regulations periodically change, as evidenced by the recent changes to the FLSA effective December 2016, could also make explanations in the PRR and Administrative Policy Manual obsolete with each new revision of Federal Law or regulation. The FLSA and the U.S. Department of Labor provide employers with criteria and guidelines, but do not attempt to simply define an exempt employee. In order to qualify for the exemption from overtime pay, employees generally must meet certain tests regarding their job duties, be paid on a "salary basis", and be compensated at or above the required salary level threshold set forth in the FLSA. Assuming the salary level and salary basis tests are satisfied, an employee's specific job duties must meet the requirements of one of the exemption categories (such as executive, administrative, professional, computer, etc.) to be classified as exempt. Further, the manner in which the employer uses the employee (paying for their time versus paying for their application of a body of knowledge on a body of work) has a direct bearing on whether the employee can be exempted.

Because 25% of the County's regular employees are classified as exempt, the County faces substantial inherent risks associated with incorrectly classifying employees as exempt. These risks to the County include: The US Department of Labor may open an investigation and file a lawsuit if it believes a classification was incorrect. The California Labor Commissioner may take action if he/she believes a classification is incorrect. Individual employees may file a lawsuit if they believe their classification is incorrect. A class action suit may be filed for alleged misclassification. If a classification is challenged, the employer bears the burden of proving the classification is correct. The employer will be liable for back pay and possibly penalties and interest if a position is required to be reclassified. • If pending federal legislation is passed, employers may be required to reclassify some exempt employees as nonexempt or increase their salaries. Reclassification – in either direction – may result in employee dissatisfaction, lower morale, and decreased productivity. Because the number of lawsuits alleging misclassification is increasing, employers face growing risk of being sued. Partially agree. While it is true that misclassifying employees as exempt does pose risk to any employer, there is no evidence present to indicate that there are any County employees who are currently misclassified. Approximately 23% of current regular County employees are in exempt job classifications, while the bulk (approximately 77%) of regular County employees are in nonexempt job classifications. Further, there are many County positions which pose little to no risk of being misclassified due to the nature of their work (see response to FI-05 for more detail).

Considerable judgement must be applied when deciding to classify a position as exempt rather than nonexempt. The focus must be on actual job duties performed on a daily basis rather than job title, job description, or salary level [Little v. Belle Tire]. Careful attention should be given to comparing the cost of paying occasional overtime to a nonexempt employee with the cost of paying a fixed salary to an exempt employee regardless of hours worked.

Due to the large number of County positions classified as exempt, there is a potential for significant financial impact if positions have to be reclassified or salaries increased to avoid reclassification. Partially agree. If positions have to be reclassified from exempt to nonexempt status, there may potentially be significant financial impact. However, there is no evidence to suggest that the number of County exempt positions (23%) is particularly large given the nature of the work that they perform. There are many County positions which pose little to no risk of being misclassified. Executive and "learned" professional positions easily meet the criteria for exemption from FLSA. The professional exemption also specifically allows for the exemption of employees working primarily in the professional practice of law, medicine, engineering, and accounting. In addition, the regulations contain a special rule for "highly-compensated" workers who are paid a total annual compensation of $100,000 (this amount increases to $134,004 effective December 1, 2016) or more. Highly compensated employees have a lower exemption standard to meet than other employees/positions. Highly compensated employees are deemed exempt if they: meet the salary threshold; are paid on a salary basis; have primary duties that include performing office or non-manual work; and customarily and regularly perform at least one (rather than all) of the exempt duties or responsibilities of an exempt executive, administrative or professional employee. As previously noted, FLSA regulations periodically change. In 2014, President Obama directed the U.S. Department of Labor to update and modernize the regulations governing the exemption of executive, administrative, and professional employees from the minimum wage and overtime pay protections of the FLSA.

Due to the large number of County positions classified as exempt and therefore eligible for administrative leave, there is a potential for significant abuse of the Administrative Leave Policy. Exempt employees benefit from being paid their full salary for a week in which any work is performed. If the granting of administrative leave is not carefully controlled, classifying positions as exempt may be a financial disadvantage for the County. Partially agree. A review of County records provides no indication that the County's Administrative Leave policy, as defined in the Administrative Policy Manual, is being abused. County payroll records for calendar year 2015 indicate that administrative leave represented approximately 0.2% of all time paid to FLSA exempt employees. Further, it is highly unlikely that the County will be financially advantaged by reclassifying exempt positions to nonexempt, thus making them eligible for overtime pay equivalent to 150% of their regular rate of pay. There may be some confusion in the use of the term "administrative leave". Based on the nature of their work, business needs, and supervisorial approval, exempt employees and their superiors have more latitude than nonexempt employees in arranging their time at work. This is separate and distinct from the granting of administrative leave, as permitted by the County's various collectively-bargained Memoranda of Agreement and the Administrative Policy Manual. The purpose of administrative leave is to provide time off (in full, one day increments) with pay for employees who are not eligible to be compensated for overtime. It is granted at the discretion of the Department/Agency Head and is intended to provide recognition of an outstanding or noteworthy work event or events, such as extended projects or work efforts entailing a substantial amount of uncompensated hours of work.

The County has not determined the financial impact of having 25% of its employees in positions classified as exempt. Partially agree. While fiscal reality is always noted, the County has classified employee positions based on legal requirements rather than primarily on financial concerns. The County could treat exempt employees as nonexempt by assigning them a set forty (40) hour schedule and compensating them with overtime pay for any time worked over that schedule. Such an election would likely have a substantial financial impact on the County budget. We calculate that if every current FLSA exempt employee worked only two (2)

Administrative Policy Manual is inconsistent across employee units. While the Administrative Policy Manual merely states that administrative leave shall be granted for no more than three consecutive days, some MOA's (SEIU and VEA) express increments for taking administrative leave in terms of maximum hours per workday. Still others express the increment in terms of a minimum (MCCOUER, CNA, APCD), or make no mention of time increments (CJAAVC). While the meaning may seem the same, the SEIU and VEA wording would allow the practice of granting administrative leave in increments as small as one hour while the wording in the MCCOUER's would prohibit the practice. Partially agree. There are modest language differences in the County Memoranda of

The MCCOUER reflects the County's position that exempt employees should not be required or even allowed to record actual hours worked beyond the regular workday. However, exempt employees may, for a variety of reasons, be required to track their actual hours worked (as long as their pay is not reduced for working less than a full workday).

A periodic review (audit) of the classification of positions as exempt or nonexempt would reduce the risks associated with the misclassification. The review should focus on actual job duties performed on a daily basis. Partially agree. As stated earlier, many of the County's positions pose little to no risk of FLSA misclassification. Considerable analysis goes into the original FLSA classification of positions upon job class establishment, and periodic FLSA classification reviews are conducted as needed. In addition, reviews and job analyses are regularly performed as part of recruitment and classification maintenance processes, providing further opportunities to capture information important to ensuring appropriate FLSA classification. Scheduled reviews (audits) of "targeted" FLSA exempt classifications (i.e., those potentially more susceptible to misclassification) are an effective tool in continuing to maintain appropriate FLSA classification and further mitigate any associated risks.

The County's Administrative Leave policy for exempt is not clearly stated. It does not have a provision related to "exceptional performance" but rather simply "satisfactory or better performance". Furthermore, it does not define satisfactory performance, thereby leaving the term open to a wide range of interpretations. Requiring documentation of hours worked by exempt employees may be useful in substantiating exceptional performance.

Requiring exempt employees to utilize available Personal Time Off, rather than Administrative Leave, for absences of less than a full work shift would reduce nonexempt employees' perception that exempt employees receive an unfair advantage. Partially agree. County administrative policy (Chapter VIII B-6) has been established pursuant to the principles of public accountability to compensate employees only for hours actually worked. It is the County's policy to require employees absent from work for less than a full day to use accrued leave or leave without pay. However, the policy is not required to be rigidly applied. Exempt employees' hours worked may be viewed over the entire pay period, not just on a day-by-day basis. It should be noted that the administrative policy is overridden by the applicable provisions of collective bargaining agreements for represented employees, and as noted earlier, administrative leave is not to be used to cover time off that is less than a day in duration.