Some employees are exempt from the overtime pay provisions, some from both the minimum wage and overtime pay provisions of the Fair Labor Standards Act (FLSA). Employees exempt from FLSA are not entitled to overtime and/or minimum wage. Employees should pay close attention to the terms and conditions of an exemption with regards to their actual duties before assuming that they are exempt from overtime or minimum wage under the FLSA. Misclassification of employees as exempt, when they are in fact non-exempt, is one of the most common violations of the FLSA committed by employers.
Exemptions are typically applied on an individual workweek basis. Employees performing exempt and non-exempt duties in the same workweek are normally not exempt in that workweek.
Generally, whether an employee is exempt or non-exempt depends on three factors:
how he or she is paid (i.e., whether he or she is paid on hourly or “salary basis”)
how much he or she is paid
what are his or her actual job duties.
An employee must meet both the salary basis and duties tests to be considered exempt from overtime.
Generally, going through the following three steps can lead to the determination of whether a position is exempt or non-exempt under the FLSA:
Step 1: Salary Basis Test
With few exceptions, to be Exempt an employee must be: (1) paid at least $23,600 per year ($455 per week); and (2) paid on a salary basis. Employees who are paid less than $23,600 per year ($455 per week) are non-exempt. But, computer professionals must be paid a salary of $455 per week or $27.63 per hour. And, highly paid employees (earning more than $100,000 per year) are almost certainly exempt. Finally, outsides sales people are subject to the salary basis test.
Generally, an employee is considered to be paid on a salary basis if he or she has a guaranteed minimum amount that he or she receives for any workweek in which he or she performs any work. This amount need not be the entire compensation received, but there must be some amount of pay the employee can count on receiving in any workweek in which he or she does any work.
The salary basis test applies to reductions in the amount paid to an employee. There can be permissible and impermissible reductions in salary basis pay. Permissible reductions do not change the employee's exempt status. However, an employee subjected to impermissible reductions may no longer be considered paid on a salary basis, and is therefore could be become non-exempt. With some exceptions, the base pay of a salary-basis employee may not be reduced based on the quality or quantity of work performed during any workweek. That is, the salary of an employee may not be reduced if he or she performs less work than normal. For example, an employee's salary may not be reduced if there is less work available, and the salary may not be reduced for partial day absences. However, employers may make deductions from the salary in full-day increments, for disciplinary suspensions, or for personal leave, or for sickness under a bona fide sick leave plan.
The salary basis test for exempt status does not apply to certain jobs (e.g., doctors, lawyers and school teachers are exempt even if the employees are paid hourly).
Step 2: Applicability of Any Exemptions
An employee who meets the salary basis test must also meet the duties test in order to be exempt. The most common white-collar exemptions under the FLSA are:
Employee is an exempt executive if the employee regularly supervises two or more other employees, has management as his or her primary duty, and also has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments).
The supervision of other employees must be a regular part of the employee's job. Supervision of non-employees does not count. In addition to the supervision, the employee must also have management as the primary duty of his or her job. The Department of Labor regulations contain a list of typical management duties, including: Interviewing, selecting, and training employees; setting rates of pay and hours of work; appraising productivity; handling employee grievances or complaints, or disciplining employees; apportioning work among employees; and monitoring work for legal or regulatory compliance; etc.
Whether an employee has management as the primary duty of the position requires case-by-case analysis. Generally, if the employee is “in charge” of a department, subdivision, or shift, he or she is likely an exempt executive. Finally, the executive employee must have genuine input into personnel matters.
The professionals in traditional “learned professions”, such as, lawyers, doctors, dentists, teachers, architects, clergy, are exempt under the FLSA. Employee who primarily performs work requiring advanced knowledge/education and which includes consistent exercise of discretion and independent judgment. The advanced knowledge must be in a field of science or learning acquired in a prolonged course of specialized intellectual instruction. Professional exemption includes creative professionals who perform work requiring invention, imagination, originality and/or talent in a field of artistic endeavor.
This is the most elusive and imprecise of the definitions of exempt job duties. The regulations define the exempt administrative job duties as: office or non-manual work, which is directly related to management or general business operations of the employer or the employer's customers, and a primary component of which involves the exercise of independent judgment and discretion about matters of significance.
The administrative exemption is understandable in the context of distinguishing administrative employees from “operational” or “production” employees. Employees who make what the business sells are not administrative employees. Administrative employees provide “support” to the operational or production employees. They are “staff” rather than “line” employees. To be exempt under the administrative exemption, the “support” work must be office or non-manual, and must be for matters of significance. Administratively exempt work typically involves the exercise of discretion and judgment, with the authority to make independent decisions on matters which affect the business as a whole or a significant part of it.
Purely clerical work may be administrative, but it is not exempt. For example. most secretaries may be performing administrative work and may in fact exercise some discretion and judgment in their jobs, but for the exemption to apply, the exercise of judgment and discretion must be about matters of considerable importance to the operation of the business as a whole.
Employee who primarily performs work as a computer systems analyst, software engineer or similarly skilled work in the computer field performing: (1) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications; or (2) design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specification; or (3) design, documentation, testing, creation or modification of computer programs based on and related to user or system design specifications; or a combination of these duties the performance of which requires the same level of skills, is usually exempt as a computer professional; and for an employee who is paid on an hourly basis, is paid at a rate of not less than $27.63 an hour.
Employee who performs sales work off the company's premises and whose primary duties include making sales or obtaining order or contracts for services or for the use of facilities for which the client or customer pays. This employee is customarily and regularly away from the company's place of business while performing such duties.
Step 3: Job Duties Test
Whether a particular position qualifies as exempt depends on what the actual job duties are for that position. Job titles are of limited use in determining whether the job duties are exempt. For example, a secretary in an office is still a secretary even if her title is “administrative assistant” or “office manager.” On the other hand, an office manager is an office manager even if he is called a janitor. It is the actual job duties, along with how those particular job tasks fit into the employer's overall operations, which must be evaluated.
Again, an exempt position must pass both the salary basis and duties tests.
Sometimes it may be difficult to determine whether an employee is exempt or not without a thorough analysis of the facts. If you feel you may be wrongly classified as exempt and not paid overtime wages, please contact us for a free confidential consultation.
Exempt employees must be vigilant against wage theft by employers by paying attention to why the employer has classified them as exempt. For instance, if employer classifies its commissioned sales personnel as exempt because the employer claims that it is exempt as a “retail or service establishment” (and thus doesn't have to pay overtime to its commissioned sales employees), employees must make sure that the employer really is a “retail or service establishment.” Not all businesses are retail or service establishments under the FLSA. Under the FLSA, for a business to be a retail or service establishment, it must have a traditional retail concept. Certain businesses, such as finance industries, are not retail under the FLSA. Employers may wrongly classify themselves as retail or service establishments when they are not so under the FLSA, and thus may wrongly deny overtime to their employers, and so employees much be watchful of this and other exemptions claimed by the employers.
Following are some general examples of exemptions under FLSA.
Exemptions from Both Minimum Wage and Overtime Pay
Executive, professional, administrative, outside sales employees, and employees in certain computer-related occupations as discussed above
Employees of certain seasonal amusement or recreational establishments
Employees of certain small newspapers and employees engaged in newspaper delivery
Seamen employed on foreign vessels
Employees engaged in fishing operations
Farm workers employed on small farms
Employees who work as companions to the elderly or infirm.
Exemptions from Overtime Pay Only
Certain commissioned sales employees of retail or service establishments
Employees of railroads and air carriers, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip rate plans
Announcers, news editors, and chief engineers of certain nonmetropolitan broadcasting stations
Live-in domestic service workers
Employees of motion picture theaters.
Since the determination of whether an employee is truly exempt is usually involves a complex analysis of the prevalent law and the facts of the case, if you have a doubt or question about your classification as exempt, please feel free to contact us for a free confidential consultation.