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Exemptions from Minimum Wage and Overtime under FLSA |
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Many FLSA violations occur when employers misclassify employees as “exempt.” (An exempt position is one for which an employer is not required to pay the minimum wage and/or pay overtime, defined as 1.5 times an employee’s “regular rate” for any hours worked over forty in one workweek.)
It’s usually not a question of a sneaky employer trying to cheat employees, according to G.Neil compliance attorney Ashley Kaplan. “More often than not, it’s misconception and ignorance of the law. And that’s not surprising,” she adds. “The FLSA is very complex and often defies logic.” G.Neil’s new FLSA Compliance Kit contains everything you need to prepare your company for the upcoming deadline, including Wage & Hour Law Understood, an easy-to-understand, reference guide that clearly explains the Fair Labor Standards Act (FLSA) in "plain English." Or, if you prefer software, ComplyWare™ FLSA walks you step-by-step through each position in your organization to help you determine an employee's status as exempt (not entitled to overtime) or non-exempt (overtime required).
The Department of Labor recently issued the FairPay Rules, new regulations clarifying and revising the criteria for determining exempt status. The new regulations, outlined below, became effective August 23, 2004. |
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Who Is Exempt?
assuming you are subject to the fair labor standards act, let’s first take a broad look at who is exempt from the regulations regarding minimum wage and overtime. (note: this list is not comprehensive. also, there are exceptions to flsa regulations. if in doubt, consult a qualified employment attorney, the employer’s legal handbook, or one of g.neil’s state-specific employment law guides.)
exemptions from both the minimum wage and overtime pay:
exemptions from overtime pay only:
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Executive, Administrative, And Professional Exemptions
Without a doubt, exemptions for executives, administrators, and professionals bedevil and confuse employers more than any other type. Let’s cut the regulations down to size.
Who is exempt? The FLSA exempts executive, administrative, professional, and outside sales employees from the minimum wage and overtime requirements of the FLSA, provided they meet certain tests regarding job duties and responsibilities. They also need to be compensated “on a salary basis.”
What ‘salaried’ means. To be considered salaried, employees must receive their full salary for any workweek in which they perform any work without regard to the number of days or hours worked. This rule applies to each exemption that has a salary requirement. Outside sales employees, and certain licensed or certified doctors, lawyers, and teachers have no salary requirement. Certain computer professionals need not be paid a salary if they are paid at least $27.63 per hour.
The executive exemption. This exemption applies to employees who earn at least $455 a week on a salary basis, whose primary duty is to manage the enterprise or a recognized department of subdivision, and who customarily and regularly direct the work of two or more other full-time employees. To be exempt, the employee also must have authority to hire and fire, or the employee's recommendations relating to hiring, firing, or other job status changes must be given particular weight. Under the new DOL regulations, the executive exemption also applies to any "business owner" (having at least 20% equity interest in the enterprise) who is actively engaged in the management of the business.
The administrative exemption. This exemption applies to employees earning at least $455 per week on a salary or fee basis, whose primary duty is to perform office or nonmanual work directly related to an employer’s management policies or general business operations (or those of the employer’s customers), and who exercises discretion and independent judgement with respect to matters of significance.
The professional exemption. This exemption applies to employees who earn at least $455 a week on a salary or fee basis and whose primary duty is to perform work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, and who consistently exercise discretion and judgment. It also applies to those who earn $455 a week on a salary or fee basis and whose primary duty is to perform work requiring invention, imagination, or talent in a recognized field of artistic or creative endeavor. Finally, it applies to those earning $455 a week (or at least $27.63 per hour) as computer programmers, software engineers, systems analysts, or other similarly skilled workers in computer software positions and whose primary duties consist of performing work requiring theoretical and practical application of highly specialized knowledge.
The outside sales exemption. This exemption applies to employees who are customarily and regularly engaged in work away from the employer's place of business, and whose primary duty is to make sales or obtain orders or contracts for the employer.
The "Highly Compensated" worker exemption. This exemption applies to employees who receive total compensation of at least $100,000 per year, and whose primary duty involves office or non-manual work. For the exemption to apply, the employee must be paid on a salary basis and must customarily and regularly perform at least one of the exempt duties of an executive, administrative, or professional employee.
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Common Misconceptions
the nature of exemptions has given rise to some common misconceptions that lead to misclassifying employees. for example:
- just because you pay someone on a salary basis doesn’t mean the person is exempt.
- just because someone has excellent job skills doesn’t mean he or she uses the independent judgment and discretion required to rate an exemption.
- just because someone has a college degree doesn’t mean that person rates an exemption.
- just because someone has the title of “manager” doesn’t mean he or she performs the supervisory duties or discretion required for exempt status.
another g.neil product that can help you negotiate the rocky shoals of the fair labor standards act is the mybiz employee handbook.
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