One of the most common areas of confusion for employers under the Fair Labor Standards Act's (FLSA) administrative exemption is determining what level of discretion and independent judgment employees must have to qualify for the exemption.
The exercise of discretion and independent judgment involves the comparison and evaluation of possible courses of conduct, and making a decision after the various possibilities have been considered. It refers to the level of importance or consequences of the work performed. Factors that the federal Department of Labor (DOL) recommends for consideration are:
- 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, even if the employee's assignments are related to operation of a particular segment of the business
- 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
- Whether the employee has authority to negotiate and bind the company on significant matters
- Whether the employee provides consultation or expert advice to management
- Whether the employee is involved in planning long-term or short-term business objectives
- Whether the employee investigates and resolves matters of significance on behalf of management
- Whether the employee represents the company in handling complaints, arbitrating disputes, or resolving grievances
The exercise of discretion and independent judgment implies that the employee has the authority to make an independent choice, free from immediate direction or supervision. However, employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level.
The exercise of discretion and independent judgment must be more than the use of skill in applying well-established procedures described in manuals. However, the use of manuals containing highly technical, scientific, legal, or financial matters that can be understood only by those with advanced knowledge or skills does not preclude exemption. These types of manuals provide guidance in addressing difficult or novel circumstances and, therefore, would not affect an employee's exempt status.
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