Strategic Compensation Chapter 2 Case Page 47 Exempt Or None

Strategic Compensation Chapter 2 Case Page 47exempt Or Nonexemptjane

Strategic Compensation chapter 2 case, page 47 Exempt or Nonexempt Jane Swift is becoming frustrated with her job as a shift leader at Jones Department Store. She’s worked there for 6 months, and the full-time job has turned into more than full time. Several associates have left the store, and as a result, the past several weeks she has worked 45–50 hours each week. She doesn’t mind working the extra hours; she is just frustrated because she is not getting paid overtime pay. She asked the store manager, Amy Kostner, about the overtime pay she was due.

Amy informed Jane that shift leaders are part of the management team and are classified as exempt under the Fair Labor Standards Act. The store is not required to pay exempt workers overtime pay. Jane agrees that she is part of the management team. As a shift leader, Jane runs the floor when she is on duty. One of the assistant managers sets the daily schedule of associates each week, but Jane and other shift leaders assign the associates to various work areas as needed.

Depending on store traffic, associates need to be moved from stocking shelves and cleaning to cashiering or assisting customers. When not work- ing on such management responsibilities, the shift leaders generally assume the duties of associates by assisting customers and cashiering. Jane reports that she typically spends only a little more than half of her time performing associate duties. Shift leaders are also involved in managerial decisions. For example, they often sit in on employment interviews and typically are aware of employee terminations before the employee is fired.

They also give feedback about the associates to the assistant managers who write the annual performance appraisals. Just like a manager, Jane makes a lot of decisions during the course of her shift each day. If there is a dispute on a sale price, Jane searches the weekly sales flyer to determine the correct price. If a customer has a return, Jane reviews the transaction and initials it before the cashier can give a refund. However, she does not have complete autonomy in making decisions.

For example, if a return is greater than $50.00, an assistant manager or the store manager needs to approve the refund. But even though she agrees that she is part of the management team, Jane isn’t satisfied with Amy’s answer on her question about pay. If she isn’t eligible for overtime pay, she thinks that she should be paid more. While she is paid at a higher rate than most of the associates, she is not paid nearly as much as the assistant managers. A pay increase or overtime pay would at least make it worthwhile for her to put in the extra hours.

Questions: 2-6.Why did Amy classify the shift leaders as exempt? Are there any advantages to Jones Department Store to having the shift leaders classified as exempt?

Amy classified the shift leaders as exempt to avoid paying overtime, which aligns with the Fair Labor Standards Act (FLSA) criteria for managerial employees. The primary reason for this classification is to prevent the store from incurring additional labor costs associated with overtime pay when employees work beyond 40 hours per week. This classification simplifies payroll management and reduces expenses, especially during busy periods or staffing shortages. Additionally, classifying shift leaders as exempt can give the store more flexibility in scheduling, allowing managers to assign hours without concern for overtime compensation, thus maintaining operational efficiency.

Questions: 2-7.Do you think that the shift leaders are properly classified as exempt? Why or why not?

The proper classification of shift leaders under the FLSA depends on whether their job duties and responsibilities meet specific criteria for exempt status, particularly under the executive, administrative, or professional exemptions. To be classified as exempt as a management employee, the worker generally must primarily perform managerial tasks, have the authority to hire or fire, and have significant discretion and independent judgment.

In Jane’s case, although she performs some managerial functions such as assigning work, participating in interviews, and giving feedback, she spends more than half of her time performing non-managerial, associate-related tasks like cashiering and assisting customers. Her lack of complete autonomy in decision-making—such as needing approval for returns over $50—suggests her role is more operational than executive. Therefore, her classification as exempt may be questionable because she does not meet all the criteria of a managerial exemption, particularly in terms of autonomy and primary duties.

Legal cases and Department of Labor (DOL) guidelines emphasize that misclassification can lead to penalties and retroactive payment obligations. If her primary duty is assisting customers and doing tasks typical of non-management staff, she should likely be classified as nonexempt and entitled to overtime pay. Proper classification requires a detailed analysis of her actual job duties and responsibilities, which in her case, may not fully align with the exempt criteria.

Questions: 2-8.What are some factors that Amy should consider when determining whether shift leaders are exempt or nonexempt?

When determining employee classification under the FLSA, Amy should consider several critical factors. First, she must evaluate whether the primary duty of the shift leaders involves managing the enterprise or a customarily recognized department or subdivision. This involves assessing whether they exercise discretion and independent judgment on significant issues, like hiring, firing, or setting policies.

Second, the level of autonomy is crucial. The extent to which shift leaders make decisions free from immediate supervision impacts exempt status. For example, whether they have authority to make significant operational decisions without requiring managerial approval is vital.

Third, Amy should examine the percentage of time spent on management versus non-management tasks. If the majority of their duties are operational like cashiering or stocking, their classification may lean towards nonexempt. Conversely, if their primary function involves planning, policy-making, and exercising independent judgment, exemption is more justified.

Fourth, the employee’s role in hiring, firing, or disciplinary actions should be considered. Active participation in employment decisions supports exempt status. If the role is primarily supportive or assisting in these areas, it suggests nonexempt status.

Finally, Amy should be aware of legal guidelines and precedents relevant to retail management roles, ensuring compliance with the DOL regulations. Proper classification minimizes legal risks and potential wage and hour violations.

Crunch the numbers! Calculating the Costs of Increasing the Total Compensation Budget at Butcher Enterprises

Butcher Enterprises has conducted a survey revealing that the average total compensation for office workers is $23 per hour, which includes wages of $16 and benefits of $7. The company's current expenditure is $19 per hour, with 70% allocated to wages, and the remaining 30% to benefits. To analyze the financial impact of increasing compensation to align with the market rates for 100 employees working 2,080 hours annually, we need to perform specific calculations.

1-7. On an average hourly basis, how much does Butcher Enterprises spend on wages and benefits, respectively, in dollars?

The total hourly compensation is $19, with wages constituting 70% of this amount. Therefore, wages per hour equal $19 multiplied by 0.70: $13.30. The benefits constitute the remaining 30%, equaling $19 multiplied by 0.30: $5.70. These figures reflect the company's current average expenditure per hour on wages and benefits.

1-8. How much does the company spend on wages and benefits over the course of one year for 100 office workers? Assume each worker provides 2,080 hours of service each year.

For 100 employees working 2,080 hours annually, the total hours worked are 100 multiplied by 2,080, equaling 208,000 hours. The total wages expenditure is 208,000 hours multiplied by the hourly wage of $13.30, resulting in $2,770,400. The total benefits expenditure is 208,000 hours multiplied by $5.70, totaling $1,185,600. Overall, the annual total on wages and benefits is approximately $3,956,000.

1-9. How much additional money does the company need to match the market rates for this group of 100 employees?

To align with the market rate of $23 per hour, the company needs to increase its total compensation per hour from $19 to $23, an increase of $4 per hour. For 208,000 total hours worked annually, this additional cost equals 208,000 hours multiplied by $4, resulting in $832,000 annually. Therefore, Butcher Enterprises must allocate an extra $832,000 annually to match the market compensation rates for its 100 office employees.

References

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