Running a Shop Law

Reducing Overtime Liabilities with Your Shop's Pay Structure

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Reducing Overtime Liabilities with Your Shop’s Pay Structure
A look at the Supreme Court’s overtime ruling with service advisors, and its residual effect on independent repair shops.

Early in April, the Supreme Court ruled in a 5-4 decision, the court declared that service advisors at dealerships are exempt due to the Fair Labor Standards Act and its overtime provisions because those workers are “salesmen primarily engaged in servicing automobiles.”

Jeffrey Brecher, principal at the Jackson Lewis office in Melville, N.Y., and head of its wage and hour practice group, says that this specific Supreme Court case exclusively targets dealerships, and independent repair shops are not subject to the ruling.

“We refer to it sometimes as the automobile dealership exemption, because it only applies to dealerships that are engaged to selling vehicles,” Brecher says.

Because the ruling only targets service advisors at dealerships, shop owners still need to pay attention to whether or not employees are eligible for overtime pay or face having to pay certain employees back dues in overtime pay. Jeff Matt, owner of six Victory Auto Service locations in Minnesota and Florida, contemplated this as soon as it was brought up to the Supreme Court. He dug further into the pay plan of his entire staff, including technicians and service advisors, to make sure he avoided any sort of liability when it came to paying his staff overtime.

“We are conforming to FLSA regardless. We’re not going to wait and see if something else is going to change,” Matt says. “We had to just change things up so that everything did conform.”


Top Liability Issues

Section 213(b)(10)(A) of the Supreme Court’s ruling states that service advisors are exempt from overtime payments, if they are employed by an establishment that’s primarily engaged in the business of selling vehicles to customers.

However, in regard to service advisors and overtime issues, Brecher says there is one exemption of the FLSA, which the ruling stemmed from, that repair shop owners should be aware of—Section 7i.

Under 7i, if an employee's regular rate of pay is less than 1.5 times the minimum wage, or if less than half of their total earnings consist of commissions, he or she would be eligible for overtime pay. Since this specific law, and many laws relating to overtime can differ by state, Brecher also says that repair shops should look to see whether their state law adopts section 7i.

“The federal law establishes the floor with respect to compliance,” Brecher says. “The state can, in most instances, provide laws with greater protection with respect to the minimum wage or overtime.”

To find out whether your shop is affected by these specific state laws, shop owners should check with a local attorney or HR professional.


How to Protect Yourself

As he saw these issues from the Supreme Court bubbling up over the past few months, Matt decided he needed to focus more on his employee’s pay plans, especially the language in section 7i of the FLSA. Additionally, one service advisor working in a Florida location spoke with his attorney, and sent Matt a letter in the mail saying they thought they were owed overtime.

“The timing of that lined up perfectly with what was going on,” Matt says. “As an owner I felt I was behind on the understanding of that and my risk.”

Over a six-month process, Matt worked with his employees, including service advisors and even technicians, to make sure they had the right pay structures in place.

Matt put something together for his employees that listed the pay classification that they would fall under, whether it be salary, commission or hourly. He also explained that employees that fell under the salary heading would need to meet one of three duty tests, which means the majority of that employee's duties must be in line with the FLSA expressed responsibilities of his/her employee classification; Executive, Administrative or Professional, mainly white collar company leadership roles.

The first thing Matt did was look at his hourly employees, who were paid hourly wages and incentives for production, but were typically scheduled 45 or more hours per week. To make sure he avoided any overtime issues, he gave his hourly employees raises, and cut their hours back so they wouldn’t feel the change. He now has a form each of his employees, new or old, sign that details employee exemptions in overtime under the FLSA.

He also advises shop owners to make certain their hourly employees punch out whenever they leave the shop. Matt found that once he took a closer look a things, the same service advisor who attempted to claim overtime never actually clocked out for lunch. If you’re not keeping a close eye and measuring when your employees are in the shop, you may find liability issues.

“It’s something I think a lot of companies don’t think about,” Matt says. “You shouldn’t be lax about it at all.”

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