“Wouldn’t this apply to in-house marketers working for firms?” I asked.
“I believe it would,” the attorney replied. At that moment, I knew I had stumbled on something I just had to share with you.
Today, I’m going to make the case for why many marketers are not being properly compensated under Federal law. I’m going to explain why firm leaderships need to know about this. And I’m going to provide all the information you or they would need to decide for themselves whether or not anyone’s compensation needs to be adjusted.
This is huge.
But before I begin, let me make something clear. I am not an attorney. I have not studied law. I am in no way a credible expert when it comes to interpretation of Federal tax or employment law. And I do recommend that any firm leader who reads this get the proper legal advice from a licensed attorney.
He’s Told You What He Is Doing, You Just Didn’t Hear
President Obama makes a big deal about the middle class and misclassified workers. He mentions these two these things in many of his speeches. What’s he talking about?
Employers pay taxes on employees. The first kind is they withhold taxes from your paycheck. On top of that, employers must match a certain portion of these withholdings. The more money you make, the more they have to withhold (i.e. give to the government). This “more money to employees = more money to the government” concept is important to understand. It is also important to understand that, while the economic burden is ultimately on the employee, the less a company pays an employee…the less they pay in payroll taxes.
The Fair Labor Standards Act
The Federal government has a law that dictates how employees must be compensated. It’s called the Fair Labor Standards Act (FLSA). If you ever heard of someone getting “time and a half” for working over 40 hours, that’s coming from the FLSA.
Last year, I sat through a legal presentation at a firm called Reed Smith. It was about employment issues confronting employers in the construction industry. What I learned, and what I’m about to share with you, really blew my mind.
You Likely Should Be Getting Paid Overtime
We all understand the struggle marketers have had and the steps they have taken to be treated as “professionals” rather than admins or “overhead.” But let’s put that aside for a second and consider the legal definitions.
Our government has created “tests” to determine what kind of worker you should be classified as. For example, being classified as a professional requires a license/certification or special training BEYOND a college degree. From a legal perspective, most marketers do not fit that definition. You can read all about that definition here.
The majority of marketers and business developers would fall under the legal definition of “administrative worker.” And that’s where this gets interesting.
Under the FLSA, employers are required to pay overtime to some administrative workers. Workers that they don’t have to pay overtime to are known as “exempt.” But which ones are exempt? Well, the FLSA has a test for that. The test is made up of three parts. In order for an administrative employee to be exempt, ALL THREE of these criteria have to be met.
The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;
The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Let’s look at each of these in detail:
First, you have to be paid a salary and it has to be over $23,660/year. Most marketers probably meet that description.
The next item relates to your “primary duty.” That seems a little nebulous. But FLSA provides definitions so there is no ambiguity.
“Primary duty” means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.
And there is another term in there we want to define, “directly related to management or general business operations.” Again, FLSA provides:
To meet the “directly related to management or general business operations” requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example from working on a manufacturing production line or selling a product in a retail or service establishment. Work “directly related to management or general business operations” includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, Internet and database administration; legal and regulatory compliance; and similar activities.
So if a vast majority of your time is spent on marketing the firm, you meet that second criteria. And again, I think that most marketers meet that criteria (or at least I hope they would).
But now let’s look at the third criteria that must be met. It includes that “primary duty” term again. We already know what that means. But it adds a new phrase, “discretion and independent judgment.” What exactly does that mean? Again, FLSA defines this for us:
In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The term must be applied in the light of all the facts involved in the employee’s particular employment situation, and implies that the employee has authority to make an independent choice, free from immediate direction or supervision. Factors to consider include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval, and other factors set forth in the regulation. The fact that an employee’s decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment. The exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.
Wait a minute. That’s saying you must have authority to make choices on your own without immediate direction or supervision. And look at the factors to consider. Not only that, but making these choices is part of your primary duty (i.e. It’s what you spend most of your time on). Already, it seems to me that many marketers simply don’t meet this criteria. But the next phrase, “matters of significance” really hammers it home.
The term “matters of significance” refers to the level of importance or consequence of the work performed. An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer will experience financial losses if the employee fails to perform the job properly. Similarly, an employee who operates very expensive equipment does not exercise discretion and independent judgment with respect to matters of significance merely because improper performance of the employee’s duties may cause serious financial loss to the employer.
I think that’s quite clear. Just because your firm experiences a financial loss because you screw up a proposal doesn’t mean you are dealing with “matters of significance.”
Most marketers meet two out of three of these criteria. But it looks like a vast majority of marketers DO NOT meet that third criteria. And remember ALL THREE MUST BE MET in order for an administrative employee to be considered exempt from overtime.
The Highly-Compensated Employees Failsafe
The FLSA also includes a “fail safe.” If an employee’s total compensation exceeds $100K, they are automatically exempt. But based on SMPS’s salary surveys, many marketers do not fall into this category.
A Reasonable Interpretation of FLSA
Any marketing employee getting paid less than $100K and whose primary duty does not include authorization to use discretion and independent judgment on matters of significance is required, by Federal law, to be paid time and a half for any work over 40 hours. I suspect that would include a majority of marketers.
It’s not uncommon for marketers to “work through lunch,” spend late nights getting proposals ready, attend conferences or after-work functions, etc. So, the overtime wages due to a marketer in any given year could be substantial.
Let’s Play Devil’s Advocate
What arguments could employers have against paying you the overtime you are due? Let’s dissect them.
But We Have Different Laws In This State
In that case, FLSA states that the employer must comply with the standard most protective of the employee. So, you need to pay overtime or something even better. Your state may have an even stricter test that must be passed, so you’ll owe even more marketers overtime pay.
But Salaried Employees Are Except
Not true. And I think this is a common and dangerous misconception. That’s just one of three criteria that MUST be met in order to consider an administrative employee exempt.
Yeah, But Marketers Are Really Professionals
Ideologically, that’s a step in the right direction. But from the standpoint of the FLSA, it is just wrong. FLSA clearly identifies marketing as a primary duty of administrative employees. I imagine it would be hard to argue that they belong in a different category when they are explicitly identified in Fact Sheet 17C (which is about administrative employees).
What Would Scare Me If I Were An Employer
Before you print this out and hand it to your boss, consider this. How much back salary and taxes would an employer be liable for if they were in business for 20, 30, or even 70 years? Then consider the potential for additional substantial civil penalties, Federal/state tax audits, criminal charges, etc. I imagine it could be enough to put some firms out of business.
I hope you see how this information could make your employer very nervous.
And it gets even scarier for them. The Obama Administration estimates there is $6-8 billion in tax revenue lost to the misclassification of employees. And they want that tax revenue. So, they increased the Wage & Hour Division of the Department of Labor’s budget by $9.2M. And they hired 350+ new investigators. In 2013 alone, 28,628 complaints were filed and over $249M in back wages were paid.
I believe all it would take is a few administrative employees to visit http://www.dol.gov/whd/regs/compliance/fairpay/complaint.htm and file a complaint to start an industry firestorm.
What Should You Do
Let’s face it. You probably should be getting paid overtime for anything over 40 hours/week. If you don’t meet all three of the FLSA’s criteria for administrative employees and are not getting that, it’s a problem.
Here’s why. Let’s say, for example, you are a miscategorized employee who makes $40,000/year. For the last five years, you’ve worked an average of 50 hours per week. It’s reasonable to calculate that your firm owes you $75,000 in back wages. That’s $75,000 they should have paid you, but didn’t. That’s not chump change!
But my non-lawyer opinion is I think you should tread lightly here. While ignorance might not be a viable legal defense, it is likely your employer is not fully aware of the FLSA regulations. You should address any concerns that you have with your human resources representative. Feel free to send them this or print it out for them if they ask where you got this information.
Before you file a complaint with the Department of Labor, I suggest you at least talk with an attorney. I have no idea what the protections or ramifications (both legal and social) are for being a “whistle-blower” like this.
I am writing this because I think I we, as marketers, have an obligation. First, if we see anything that would lead us to believe our firm has some legal exposure, I think we need to alert them to that. Second, if we see an injustice being done in our community…I think we have an obligation to spread the word and tell other marketers what is going on.
Please share this with anyone else you know in the marketing field.