Wynken, Blynken, and Nod formed the Wooden Shoe Company to build custom fishing boats. They are both owners and employees of the company. A debate erupted between them whether they would be exempt from overtime as business owners. The boys called the lawyers at Goldnet, Silvernet & Moon to answer the question. This is what they learned.
Under the federal Fair Labor Standards Act (“FLSA”), a business owner qualifies for the “white collar” exemption to overtime as an executive employee, regardless of the amount of salary, if: (1) the employee owns at least a 20% bona fide equity interest in the business; and (2) the employee is actively engaged in the management of the business. “Actively involved in management” is considered on a case-by-case basis.
Wynken, Blynken, and Nod applied the test to their situation. All three boys had bona fide equity interests in the company, and they all met the requirement to be actively involved in the management of the company. Wynken owned 50% of the company, Blynken owned 40%, and Nod owned 10%. Wynken and Blynken qualified for the business owner exemption. Nod, however, did not qualify for the business owner exemption because he owned less than 20% of the company. The boys then checked whether another exemption applied to Nod.
What is the takeaway? Just owning any percentage of the business will not automatically exempt the employee from overtime. There is an ownership minimum and a requirement to be involved in management. All may not be lost if the owner-employee does not qualify for the business owner exemption. Another exemption could apply; otherwise, the owner-employee is eligible for overtime.
Employers also should remember that state laws could expand eligibility for overtime beyond the rules under the FLSA. Please contact us if we can be of assistance.
This post provides general information only. This post is not intended to create an attorney-client relationship or to be legal advice about your situation. Laws change and your situation may be different. You should consult with a licensed attorney for legal advice specific to your circumstances.
© 2016 Matthew D. Macy