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by Mary Dunlap, CFP®

Whether you own a planning firm with one or many employees, or are an employee yourself, understanding the rules around classifying employees as exempt or non-exempt—in other words, who is eligible for overtime and who is not—can prevent misunderstandings, hard feelings, audits, and penalties.

Perhaps this hypothetical situation sounds familiar:

A financial planning firm has two owners and five employees. The five employees are an associate planner, a paraplanner, a portfolio/investment specialist, a client service specialist/executive assistant, and an administrative assistant.

A complaint was filed with the state department of labor regarding employees working more than 40 hours per week and not getting paid overtime. The labor department audit uncovered that:

  • The portfolio/investment specialist, paraplanner, and client service specialist/executive assistant were expected to record every hour they worked and were docked pay for hours or partial days not worked. Yet, they were all paid a salary.
  • Inadequate job descriptions existed for the portfolio/investment specialist, paraplanner, and client service specialist/executive assistant. The labor department reclassified each of those employees as eligible to receive overtime. Either the position was originally to be eligible for overtime, or the exempt status was lost because of missing information and inappropriate practices.
  • Further investigation revealed that more than two years prior, the employees in the positions of paraplanner and client service specialist/executive assistant were working more than 40 hours per week. There were no job descriptions. Time cards revealed that the employees had to record every hour worked and were docked pay for hours not worked.
  • The audit went back three years for the current employees, and another two to three years for former employees.

Employees felt they were owned overtime, and this was substantiated through the audit. Improper or insufficient documentation did not support the employer’s treatment of employee’s pay.

As a result of the audit, the owners of the financial planning firm were required to pay back pay to current and past employees (including time-off, retirement contributions, and corresponding employment taxes—federal, state, Social Security, and Medicare) totaling more than $147,000. Punitive damages equal to 1.5 times the back pay was more than $220,000. Attorney fees were in excess of $50,000. In the end, more than $367,000 was paid out to everyone but the business owners.

This unnecessary expense was, in part, the result of employees working an average of just one or two hours more than the standard eight hours each day. Clear job descriptions and a better understanding of the exempt and non-exempt status could have prevented this. By taking action now before misunderstandings grow to complaints, firm owners can preserve good employee relations. Many business owners are unintentionally unaware of the regulations. And most employees are not looking to get rich off their employer, but everyone wants fair pay for what they do.

What Are the Rules?

Overtime rules and regulations are part of the federal Fair Labor Standards Act (FLSA), which also provides the standards for minimum wage, recordkeeping, and child labor. It’s important to realize that state laws also can regulate overtime and may supersede federal requirements. Check with your state’s department of labor for details. Employers should comply with the law (federal or state) that is the most generous to the employee on any particular wage and hour issue. Employers also should consider under which state law their out-of-state employees may fall.

Several exemptions from the FLSA rules exist—the most pertinent to planning firms are discussed later—and there are at least two tests that must be met to qualify for one of the exemptions.

The salary basis test is shared by all exemptions except for outside sales positions. The employee must be compensated on a salary basis of at least $455 per week. Only the “computer” exemption also allows a person to meet the test if paid on an hourly basis of at least $27.63 per hour.

The duties test is when the employee’s primary duties meet certain criteria, thereby qualifying the employee for an exemption. The focus is on duties and responsibilities; job titles do not guarantee the exemption. The determination of an employee’s primary duties must be based on all the facts in a particular case, with the major emphasis on the character of the job as a whole. The amount of time spent on a particular duty can be a useful guide, but time is not the only test.

A Look at Some Exemptions

In addition to the salary basis test and duties test, other tests may exist for certain exemptions. Learn more about all of the exemptions and get details not provided here at Here is a look at some of the more common exemptions that may apply to financial planning firms:

Executive. The person must meet the salary basis test, and his or her primary duty must be managing the business or a commonly recognized department or subdivision. The person also must regularly direct the work of two or more full-time employees or equivalents. He or she also must have authority to hire or fire employees or have a say in the hiring or firing or other status changes of employees.

A business owner (with or without employees) who has a minimum 20 percent equity stake in the business and is actively involved in the management of the business is considered to have the executive exemption.

Administrative. The administrative exemption is one of the most misunderstood and inappropriately used. To qualify, the employee must meet the salary basis test, and his or her primary duty must be office or non-manual work directly related to management or general business operations. The primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. This means independently evaluate possible courses of conduct and make decisions. He or she also must perform work that affects business operations to a substantial degree.

Financial services industry employees. Within the administrative exemption is an exemption for financial services employees. The employee must meet the salary basis test, and his or her primary duties must be office or non-manual work directly related to general business or management operations. This work could include such duties as collecting and analyzing client documents regarding financial status, assets, etc.; determining which financial products best meet clients’ needs and goals; advising clients on the advantages and disadvantages of financial products; or marketing, servicing, or promoting employer’s financial products.

The employee’s activities could be aimed at the end user (client) or intermediary (adviser). There also needs to be consistent and regular exercise of discretion and independent judgment. Employees whose primary duty is selling financial products would not qualify for this specific type of administrative exemption.

Highly compensated workers. An individual who makes at least $100,000 total annual compensation may be exempt from overtime. The person’s primary duty must be to perform office or non-manual work, and he or she must “customarily and regularly perform at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee,” according to the U.S. Department of Labor guidelines.

How to Evaluate Positions for Proper Classification

Start with the job description. If a planning firm is audited, job descriptions will be reviewed to determine overtime eligibility. If a job description is inadequate—outdated, vague with regard to addressing the exemption criteria, or not followed in practice—the employee’s exemption is at risk.

Firm owners should review job descriptions on a periodic basis and have a human resources or employment law expert review them for proper language and content. Firm owners also should make certain employees actually follow the responsibilities and standards in the job descriptions and understand that their work and responsibilities match the exemption criteria. Please see the end of this article for a job description template.

A change in the primary duties (consciously or not) and a change in salary (below the minimum) could trigger the loss of any of these exemptions. A common example is when managers or executives decide to direct or control the work of the exempt employee as a result of poor performance. The exempt employee loses the ability to exercise discretion and independent judgment. This goes beyond having work reviewed by supervisors or managers; this is being told what to do—either verbally or through strict processes.

What If an Employee Is Improperly Classified?

If a misclassification is suspected, firm owners should consult their attorney and preserve attorney-client privilege, as it can offer the employer an opportunity to have the situation investigated without the resulting documents accessed by courts. So, if the employer goes to court regarding the situation, the documents and investigation would be privileged information. Be careful to set the attorney-client privilege properly, working with in-house or outside counsel to develop a properly worded engagement letter and other documents.

Legal and human resource experts will guide employers on how to communicate issues regarding misclassification and potential back pay. An employer should not act alone.

Remember, correct and adequate job descriptions are the key to preventing this situation in the first place.

This article is for information purposes only and is not to be construed as legal advice. Consult experts such as human resources consultants and attorneys to be aware of federal, local, and state regulations and exceptions.

Mary Dunlap, CFP®, of Mary Dunlap Consulting, helps financial planning firms attract, develop, and retain the best people for their teams. She is a member of the Society for Human Resource Management. Contact her HERE.


Definitions to Know

Terms can be confusing; here are some definitions to know:

Salaried employees are paid a certain dollar amount of base compensation per week or per pay period that does not vary. As an employer, you cannot reduce the pay regardless of the number of hours worked, the quality of work, or quantity of work. Salaried employees are not automatically “exempt” from overtime just because they are paid a salary.

Hourly employees are paid by an hourly wage rate, and the wage for the pay period will depend on the number of hours worked.

Exempt employees meet the “exemption” from overtime based on meeting various federal and state criteria, which may or may not be the same. Interpret this as: employees are nonexempt and eligible for overtime unless the employee meets the exemption criteria. Exempt employees are usually paid a salary. If you choose to pay an exempt employee on a piecemeal, hourly, or commission basis, the exempt status may be challenged. Misclassification occurs when employees are classified exempt from overtime incorrectly.

The Fair Labor Standards Act (FLSA) generally requires employers to pay nonexempt employees at least the minimum wage and overtime pay. The act requires overtime pay of at least 1.5 times the employee’s regular rate of pay for hours worked in excess of 40 hours in a workweek (in some states it may be in excess of eight hours in a workday). The overtime rate could be more depending on state and other regulations.

Develop a Job Description in 7 Steps (with Template)

A job description is a useful, plain-language tool that describes the tasks, duties, functions, and responsibilities of a position. It outlines the details of who performs the specific type of work, how that work is to be completed, and the frequency and the purpose of the work as it relates to the company’s mission and goals.

Job descriptions are used as a tool for recruiting, determining compensation levels, conducting performance reviews, clarifying missions, establishing discretion and independent judgment, outlining management or decision-making authority, career planning, and legal requirements for compliance purposes. A good job description gives an employee a very clear and concise resource to be used as a guide for job performance. Likewise, a supervisor can use a job description as a measuring tool to ensure that the employee is meeting job expectations.

Read the steps below, then use the guidance provided by the template at the end to craft an effective job description.

Step 1: Perform a Job Analysis

This process of gathering, examining, and interpreting data about the job’s tasks will supply accurate information so a company can perform efficiently.

  • Interview employees to find out exactly what tasks are being performed. Use face-to-face meetings, questionnaires, and worksheets to gather this information.
  • Observe how tasks are performed.
  • Identify what tasks are currently not being completed by anyone in the firm.
  • Collect data on the job’s tasks from other resources, including templates or examples from other firms or organizations.
  • The preliminary drafts should be reviewed by employees (who would be completing the tasks, the training for these tasks, or involved in the overall process) and supervisors.

Step 2: Define Work and Standards

The work and standards can be listed in different formats within categories of general functions; for example: service, analysis, production, quality control, compliance, general office, administrative, research. List each task, project, or responsibility.

Standards could include:

  • What is done by the employee and how, listing the guidelines or referring to established procedures. This can vary according to the amount of discretion, authority allowed the person,
  • When (how often) is this done; under what circumstances (if needed), and/or where to perform the work.
  • What are considered successful results or completion of work?
  • Percent of time spent, approximate time to complete, and deadlines for completion.
  • Priority (low, medium, or high) relative to other tasks, projects, or responsibilities.

Step 3: Assign Priorities for the Tasks

What are the essential duties versus the marginal ones? For each task (or group of tasks) determine:

  • Essential duties are duties that are the position and cannot be assigned to another employee without changing the purpose of the position and affecting the effectiveness of the firm and its operations.
  • Marginal duties are duties that are part of the job but could be reassigned to another employee or may have more than one employee completing them.

For each duty or group of duties, assign a priority for completion relative to other duties.  

Step 4: Determine Necessary Qualities To Be Successful

  • Knowledge: Comprehension of a body of information acquired by experience or study; education experience, designations, etc.
  • Skills: A present, observable competence to perform a learned activity. For example, communication (oral and writing), mathematics, prioritization, organization, attention to detail, critical thinking, technology skills, etc.
  • Abilities: Competence to perform an observable behavior or a behavior that results in an observable product, such as initiative, able to act in emergencies and tight deadlines with level-headedness, management, troubleshooting, innovation, etc.
  • Emotional intelligence: Behavior, motivation, values, attitudes

Step 5: Organize the Data Concisely

The structure of the job description may vary from firm to firm, however, all job descriptions within a firm/company should be standardized so that they have the same appearance. The following should be included:

  • Date: When job description was written. 
  • Job status: Exempt or nonexempt under FLSA, full-time or part-time. 
  • Position title: Name of the position. 
  • Objective: What the position is supposed to accomplish, how it affects other positions and the organization. 
  • Supervision: To whom the person reports, and direct reports, if any.
  • Job summary: An outline of job responsibilities. 
  • Essential functions: Detailed tasks, duties, and responsibilities. 
  • Competency or position requirements: Knowledge, skills, and abilities. 
  • Quality and quantity standards: Minimum levels required to meet the job requirements. 
  • Education and experience: Required levels. 
  • Time spent performing tasks: Percentages, if used, should be distributed to equal 100. 
  • Physical factors: Type of environment associated with job (indoor/outdoor, etc.). 
  • Working conditions: Shifts, overtime requirements as needed. 
  • Unplanned activities: Other duties as assigned. 

Step 6: Disclaimer

It is a good idea to add a statement that indicates that the job description/duties is not designed to cover or contain a comprehensive listing of activities, duties, or responsibilities that are required of the employee.

Step 7: Signature Line

Show approval by level(s) of management and supervisor(s) as well as receipt by employee stating he or she received a copy, understands the requirements, and can contact supervisor if he or she has questions.

Job Duties and Standards Template

As a guideline, do not include comments or requirements that make reference to or include, for example: race, religion, color, sex, national origin, age, marital status, children, child care, height, weight, arrests, military discharge, economic status, medical conditions, or physical handicap. You could, however, specify the physical requirements and work conditions of the position. 

Job Title (to differentiate between other positions)

General Description covering:

  • How position fulfills business mission
  • Overall purpose of the position
  • How the person in the position will grow and learn
  • Amount of authority, exercise of discretion, and independent judgment in areas such as operations, management, application of advanced knowledge, skills, analysis.

Job Status (exempt or non-exempt under FLSA; full-time or part-time)

Include primary duties and how it meets exemptions under FLSA (if an exempt position).

Supervision Received (reports to …?)

Supervisory Responsibilities (if any)

Profile of Person Best Suited for the Position (you can use a range of qualifiers if you feel that you have options for the position)

Skills, Reason, Education, Experience, Abilities, Work Style

Emotional Intelligence (behavior, motivation, values, attitude)

  • Behavior: working with others, courtesy, professionalism, manners
  • Motivation: what you want a person to do in this position
  • Values: matching the core values of the firm
  • Attitude: what you want to see in the workplace

Work and Standards

Physical Factors (type of environment, any physical activity involved in position, etc.)

Working Conditions (shifts, overtime requirements as needed)

Unplanned Activities (other duties as assigned)


Signature Line

This material is provided by Mary Dunlap, CFP®, of Mary Dunlap Consulting, for informational purposes only and is not to be construed as legal advice. Consult experts such as human resources consultants and attorneys to be aware of federal, local, and state regulations and exceptions.

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