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The Lesser Known Overtime Compensation Exemptions – 20 Percent Equity Interest Owners

On Behalf of | Jun 4, 2013 | Retaliation, Wage: Overtime |

Lawyer in Cleveland, Ohio

The Fair Labor Standards Act provides several exceptions to the general rule that if an employee works over 40 hours in a work week, then the employee is entitled to overtime compensation. Among the lesser known exemptions is the Equity Interest Exemption, which exempts an employee from overtime compensation if the following are met:

An employee who owns at least a bona fide 20-percent equity interest in the enterprise in which employed, regardless of the type of business organization (e.g., corporation, partnership, or other), and who is actively engaged in its management, is considered a bona fide exempt executive.

Thus, in order to fall under this exemption, the employee must (1) own at least a 20 percent equity interest in the business and (2) be actively engaged in the management of the company. While this exemption may seem redundant to the already more popular executive, administrative and professional exemptions, which contain several of the same requirements, there is one important distinction, the salary requirement. Indeed, under the professional, executive and administrative exemptions, the employee must be paid on a salary basis and meet several different tests to determine if the employee’s salary is sufficient to warrant exemption from overtime compensation. No such salary requirement exists for the Equity Interest Exemption. In fact, the Code of Federal Regulations, which defines several of the key provisions in the Fair Labor Standards Act, provides that “the salary and salary basis requirements do not apply to the exemption of business owners under 29 C.F.R. § 541.101.” In practical terms, this means that an employee could be paid on an hourly basis, but still fall under the exemption if the employee is a 20-percent equity interest owner and actively participates in management of the business.

Still, there are limitations to the exemption, most notably in what constitutes “management” of the business. To this end, the Code of Federal Regulations has stated, “An individual with a 20 percent or greater interest in a business who is required to work long hours, makes no management decisions, supervises no one and has no authority over personnel does not qualify for the executive exemption.”

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If you have questions or concerns regarding your own employment classification, or are unsure whether or not you should be receiving overtime compensation from your employer, call the employment attorneys at Spitz, The Employee’s Law Firm for a free consultation today.

If you even think that your employment rights have been violated or that you might need an employment lawyer, then call the right attorney to schedule a free and confidential consultation at 866-797-6040. Spitz, The Employee’s Law Firm is dedicated to protecting employees’ rights and solving employment disputes.


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