Are Accountants Entitled to Overtime Pay?

Updated: Sept 2022

For CPAs and other professionals in the accounting industry, working long hours is common—particularly during tax season. As their average work weeks exceed 40 hours, some accounting firm employees have wondered whether they are entitled to overtime pay.

This question hinges on whether they are classified as exempt or nonexempt employees under the federal Fair Labor Standards Act (FLSA). In recent years, each of the “Big Four” accounting firms—PricewaterhouseCoopers (PwC), Deloitte, Ernst & Young, and KPMG—have become embroiled in class action lawsuits by current or former employees who claimed that they were entitled to overtime pay for their work as staff accountants or auditors.

In light of these lawsuits and potential changes looming under the FLSA, employers in the accounting industry should review the applicable law in their states and ensure that they are properly compensating employees who work more than 40 hours per week.

Overtime pay under the FLSA

The FLSA was enacted in 1938 to regulate matters such as the minimum wage, overtime pay, and child labor. Under this sweeping federal law, nonexempt employees are entitled to time-and-a-half pay when they work more than 40 hours in a week. Exempt employees, on the other hand, are not entitled to overtime, regardless of how many hours they work. Therefore, it is crucial for all employers to properly classify their workers as exempt or nonexempt.

To be considered exempt, an employee must earn more than $23,660 per year and perform executive, administrative, or professional job duties. The overtime pay lawsuits against accounting firms have involved the professional exemption, which requires that:

The employee’s primary duty is to perform work that requires advanced knowledge, is predominantly intellectual in character, and involves the consistent exercise of judgment and discretion;
The advanced knowledge is in a field of science or learning; and
Advanced knowledge is acquired through a prolonged course of specialized intellectual instruction.

The Department of Labor is in the process of considering changes to the salary threshold for classifying employees as exempt. The current amount of $23,660 has not been updated since 2004. Employers in all industries should stay tuned for upcoming changes, as an increase of the salary threshold could greatly expand the number of workers who qualify for overtime pay.

Are accountants considered exempt or nonexempt?

While experienced accountants and licensed CPAs would almost always be exempt under the FLSA, the proper classification is less clear for lower-level accountants and other entry-level employees of accounting firms. Some of these employees have argued that their work mainly consists of routine mechanical tasks that do not require independent judgment or discretion, and that rigid rules and close oversight by more experienced accountants reduce their work to a clerical function. Therefore, they claim that they do not meet the FLSA’s professional exemption requirements and are thus entitled to overtime pay when they work more than 40 hours in a week.

On the other hand, accounting firms maintain that all accountants are learned professionals who have received specialized education and training. In the performance of their job duties, they are expected to exercise judgment and discretion that applies their relevant knowledge and expertise. In addition, firms have asserted that if they were required to pay staff accountants over time, it would strain their business model and force them to rely more heavily on alternatives like technology and outsourcing—ultimately leading to far-reaching negative consequences in the industry.

Class action lawsuits against major accounting firms

While there is no clear answer as to whether lower-level staff accountants are exempt or nonexempt under the FLSA, countless employees have joined together in class action lawsuits against major accounting firms to assert that they are, in fact, non-exempt and thus eligible for overtime pay. The following cases are among the most prominent lawsuits that have arisen on this issue.

Campbell v. PwC (2011)

The plaintiffs, in this case, constituted approximately 2,000 unlicensed (non-CPA) accountants who claimed that as a result of “strict instructions, comprehensive computer auditing software, and an extensive work-review system,” they were precluded from exercising independent judgment and discretion. Therefore, the plaintiffs asserted that they did not fall under the FLSA’s professional exemption and were entitled to compensation for overtime that they had worked in the past. On the other hand, PwC argued that the plaintiffs and other employees in similar positions were expected to use discretion, analytical thinking, and independent judgment as part of their assignments; insofar as they did not exercise such discretion, they were failing to meet the essential requirements of their roles.
After eight years of litigation, PwC agreed to settle the lawsuit. While the two primary plaintiffs were each awarded only $10,000, PwC paid out $2 million in attorneys’ fees and over $900,000 in out-of-pocket costs. However, the firm did not agree to grant nonexempt status to employees in roles similar to those of the plaintiffs.

Pippins v. KPMG (2014)

The plaintiffs worked for KPMG as Audit Associates and claimed that they were nonexempt and thus entitled to overtime pay. In a victory for accounting firms, the Second Circuit Court of Appeals held that Audit Associates are learned professionals whose work requires advanced knowledge obtained through a prolonged course of specialized intellectual instruction, as well as the exercise of judgment and discretion. Therefore, the court ruled that KPMG had properly classified the plaintiffs as exempt under the FLSA. Although this decision is only binding in Connecticut, New York, and Vermont, it could influence the outcomes of other cases that arise on this issue.

Sutherland v. Ernst & Young (2015) and Morris and McDaniel v. Ernst & Young (2013)

In both of these cases, the plaintiffs were staff accountants whose original employment contracts included arbitration clauses. The courts upheld these clauses, ruling that they precluded class action lawsuits and forced the parties to settle their disputes in arbitration.

In re Deloitte & Touche Overtime Litigation (2011)

This class action lawsuit involved unlicensed auditors for Deloitte who claimed that they were nonexempt because they worked under the close supervision of higher-level, licensed employees and performed rudimentary and administrative tasks to support CPAs. This case has not been scheduled for trial, and the parties are still pursuing settlement negotiations.
Although these five cases indicate that courts, in general, have been reluctant to rule that unlicensed, lower-level accounting firm employees should be classified as nonexempt under the FLSA, lawsuits on this issue may result in costly litigation and settlement packages for firms. The question of proper classification for employees in these roles remains unsettled, and firms should be aware that different courts may reach different conclusions.

In light of this uncertainty, here are a few steps that employers in the accounting industry should take to avoid the risk of lawsuits:

Review the applicable law in their states to determine whether courts have provided any guidance on how to classify unlicensed, lower-level accountants.
Examine the firm’s compensation plans and policies to ensure that employees are fairly compensated considering the number of hours that they work and the skills and knowledge that are required for their roles. In addition to helping minimize liability, offering competitive pay and benefits is an effective way for employers to attract and retain talent.
Consult an HR expert to review proper FLSA classifications of employees and other workplace policies.