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September 7, 2012
Washington Court of Appeals provides guidance on whether audit associates are entitled to overtime pay under the Washington Minimum Wage Act.

In the recent case of Litchfield v. KPMG, the Washington Court of Appeals held that audit associates might be exempt from overtime pay even if they lack the education and experience necessary to qualify for a CPA license.

Mark Litchfield worked in KPMG’s Seattle office in 2003 and 2004 as an entry-level audit associate. To qualify for this position, an individual must ordinarily possess a college degree with an accounting concentration. In contrast, under the Public Accountancy Act (“PAA”), a CPA license requires 2000 hours of on-the-job training in addition to an accounting degree. Litchfield held a bachelor’s degree in accounting but lacked the hours to apply for a CPA license. As a salaried employee, he did not receive overtime pay.

In 2007, Litchfield sued KPMG on behalf of himself and a group of former and current KPMG audit associates, arguing that as unlicensed accountants they were entitled to overtime pay under the Minimum Wage Act (“MWA”). He urged the court to adopt a bright-line rule that audit associates lacking the qualifications for a CPA license cannot be “exempt professionals” under the MWA, and are therefore always eligible for overtime pay. The trial court agreed with Litchfield and held that audit associates lacking the education and experience necessary for a CPA license are eligible for overtime pay.

The Court of Appeals reversed the trial court’s ruling. The court pointed out that the PAA does not set the standard for whether employees are entitled to overtime pay; it merely establishes the criteria to become a licensed auditor. Instead, employers should look to the Department of Labor and Industries regulations providing that employees are exempt from overtime pay if they (1) earn more than $250 a week; (2) perform work requiring advanced knowledge through a prolonged course of study; and (3) constantly exercise discretion while performing their duties.[1] Noting it was entirely possible that audit associates use advanced knowledge and exercise discretion while performing their job, the Court of Appeals sent the case back down to the trial court to get more facts about the scope of the Litchfield’s duties and responsibilities at KPMG to determine whether he was eligible for overtime.

In light of this ruling, accounting firms should take note that their entry-level associates might not be entitled to overtime pay. The test is not whether an employee holds or is eligible to apply for a CPA license. Rather, the test is whether the employee’s work requires the use of “advanced knowledge” above and beyond a general academic education, as well as exercise of discretion (in addition to earning more than $250 a week). Eisenhower’s Employment Law practice group is ready to assist your business with such an evaluation. If you would like to discuss this or other employment issues with an Eisenhower lawyer, click HERE.

[1] Under federal law, however, employees are exempt from overtime only if they make more than $455 per week.

 

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