Exempt Salary Test

An exempt salary test is a list of qualifications that helps employers understand whether an employee should be exempt status or not. There are several different ways to handle an exempt salary test, including a salary level test and salary basis test.

FLSA Coverage

The majority of jobs in the United States are governed by the Fair Labor Standards Act (FLSA). However, there are jobs that are excluded from coverage by the FLSA. On top of this, there are jobs that are officially overseen by the FLSA, which are not subject to FLSA overtime regulations. These jobs are considered exempt.

There are a number of jobs that are not part of the FLSA statute because they are governed by other laws and regulations. These include professions such as truck drivers and agricultural workers.

FLSA Coverage Exclusions

Some jobs are not covered by FLSA overtime regulations. They are specifically stated in the statue. If a position is covered by other federal labor laws, it is excluded from FLSA protections. These exclusions can be found in the FLSA statute §213.

Some exempt jobs include:

  • Agricultural work
  • Long or short-haul truck driving
  • Movie theater employees
  • Railroad employees

Understanding Exempt and Nonexempt

When a job is overseen by the FLSA, the employee is considered either exempt or nonexempt. Nonexempt employees:

  • Must be paid minimum wage or higher
  • Must receive overtime pay for any hours more than 40 worked in a work week
  • Can file a claim for FLSA overtime with the United States Department of Labor if off-duty time is not properly recorded or worked hours are not properly paid

Exempt employees:

  • Are not eligible for overtime pay
  • May be classified as exempt by definition
  • May be classified as exempt by their wage
  • May be classified as exempt by their duties
  • In general, must make at least $47,476 per year or $913 per week (as of the 2016 ruling), receive their pay on a salary basis, and perform job duties that are exempt

The most recent change to the FLSA rulings on exempt pay level is $47,476 per year. This is less than the proposed amount of $50,440. There is an additional exemption level, called the highly compensated employee exemption (HCE). This salary threshold is $134,004 and includes employees in the 90th pay percentile nationwide.

An additional ruling made by the FLSA automatically increases these thresholds every three years. This is to account for increases in cost of living.

The requirements for exempt employees are listed in the FLSA Regulations, overseen by the Department of Labor. These requirements use three tests:

  • Salary Test
  • Salary Basis Test
  • Duties Test

The majority of employees must meet minimum qualifications on all three tests to be considered exempt by FLSA. In addition, several states have specific laws governing overtime and overtime exemptions. In some states, the requirements for the three tests listed above are more stringent than those placed by FLSA.

New FLSA rules may cause employees to either work fewer hours or earn higher wages. Employers are required to either increase the salary of exempt employees to fit the current definitions outlined in the Salary Test and Salary Basis Test or start paying employees earned overtime if their salaries are kept the same. Another option is to ensure that employees are not working more than 40 hours per week.

All employers were required to comply with new FLSA rulings by Dec. 1, 2016.

Testing Salary Level

About 35 percent of salaried workers in the U.S. meet the salary level test requirements to be nonexempt, according to the Department of Labor (DOL). According to new rules in 2016, the maximum salary level allowed to be nonexempt is $47,476 per year or $913 per week. Nonexempt employees are eligible for overtime pay.

Keep in mind that the salary level test standards can and do change. The DOL expects that the maximum salary to be considered nonexempt will rise to $51,000 per year or $981 per week by 2020.

Salary Basis Test

Another way to determine if an employee is exempt or nonexempt is with the salary basis test. An employee is considered to be on a salary basis if they are paid a guaranteed minimum on each pay period, no matter how many hours the employee works. This is a minimum guaranteed amount, and may not include the employee's full compensation.

Employees paid on a salary basis are paid based on their annual income figure divided by the pay periods in the year. Employees who receive lower pay when they work fewer than normal hours in a week are not considered salaried.

Salary basis does not change if the pay is shown in hourly terms or pay period terms. The determination comes down to whether the employee has a guaranteed amount of money they can count on each pay period.

The Fair Labor Standards Act (FLSA) salary basis test is based only on money amount deductions. When employees charge their absences from their job to the leave they have accrued, this does not constitute a reduction in pay.

An employee's base pay when salaried does not get reduced because of the quality or quantity of the work performed. If any work is done in the pay period, the employee receives the guaranteed minimum amount. In addition, if there is no work for the employee, such as slow periods, the salary basis employee's pay cannot be reduced. Base pay for these employees also cannot be reduced because of absences that are part of the day.

There are some specific instances in which employees with salary basis pay can have their base pay docked, such as:

  • Personal leave
  • Suspension from the position because of disciplinary action
  • Sickness under a sick leave plan when accrued sick leave has been used

Reductions in a salary basis pay can be either permissible or impermissible. When reductions are permissible, the employee's exempt status is not affected. On the other hand, impermissible reductions can change an employee's exempt status. Since employees who have impermissible reductions to their pay are no longer considered on a salary basis.

Some jobs and professions do not have a salary basis pay requirement for their exempt status. Employees in these positions are consider exempt, even when paid hourly:

  • Lawyers
  • Doctors
  • School teachers

Duties Test

Another way to see if an employee has exempt status is through the FLSA duties test. Employees who meet the salary basis test and the salary level test may be exempt if they perform job duties that are considered exempt. These exempt duties are generally limited to performing high-level work.

To determine whether employees are exempt, the specific duties they perform must be evaluated, rather than the job title. And an additional evaluation may be required to see how these specific tasks work in the operations of the company.

The three categories of exempt duties are:

  • Professional
  • Administrative
  • Executive
  • Exempt Executives supervise two or more employees' other than themselves regularly
  • Exempt Executives are primarily managers in their role
  • Exempt Executives have genuine and significant input on the status of other employees, such as promotions, firing, hiring, and special assignments

Job Duties for Exempt Executives

According to the FLSA Regulations, management duties include:

  • Selecting, interviewing, and training employees
  • Setting employee work hours and pay
  • Maintaining sales and production records
  • Handling complaints or grievances by employees
  • Appraising productivity
  • Determining techniques for productive work
  • Disciplining employees
  • Planning and delegating work among managed employees
  • Determining equipment or materials needed to perform regular work
  • Monitoring regulatory and legal compliances
  • Planning and implementing budgets
  • Providing security and safety in the workplace

Deciding whether employees are considered to have management as a prime part of their position is subjective, and requires case-by-case evaluation. Generally, if employees are in charge of a department, they are considered to have management as a primary duty

Employees can be considered to perform executive job duties, even when they execute a number of other job-related duties, as well.

Job Duties for Exempt Professionals

There are many professions that have learned profession exemptions. Employees who fall under the exempt professional's category include:

  • Doctors
  • Lawyers
  • Dentists
  • Architects
  • Teachers
  • Clergy
  • Registered Nurses
  • Engineers
  • Scientists
  • Pharmacists
  • Accountants
  • Actuaries

There are some restrictions in several of these employment categories. For example, only engineers who have a degree in engineering, or an equivalent, and have job duties that are generally only performed by licensed engineers qualify.

Employees whose job requires them to have advanced knowledge or an advanced degree may qualify for exempt status. To qualify for professional exempt status, an employee is required to have a higher education than high school. However, while an advanced degree can give an idea of whether an employee is professional exempt status, it is not always required.

Creative professional duties may be performed for exempt status, as well. Employees who can qualify for creative professional duties include:

  • Composers
  • Actors
  • Writers
  • Musicians
  • Journalists
  • Cartoonists

These duties cover employees that work in a field that requires originality, talent, and invention.

Job Duties for Exempt Administration

In most cases, exempt administration is the most difficult of the exempt status duties to identify. The official definition states that exempt administrative job duties are:

  • Directly related to the general business operations or management of the company or customers
  • Office or nonmanual work
  • Exercising independent discretion and judgment in matter of significance

Generally, the designation of an exempt administrative status is reserved for high-level employees. These employees have a core responsibility to keep the company going. These employees offer support to the production and operational employees in a company.

Functions that may qualify for exempt administrative duties include:

  • Finance and payroll
  • Personnel and labor relations
  • Advertising and marketing
  • Records maintenance
  • Tax and accounting
  • Public relations
  • Quality control
  • Network or database administration
  • Regulatory and legal compliance

In general, exempt administrative work requires the extreme implementation of judgement and discretion combined with the authority to make decisions that affect the company. Employers who are unsure if their employee has tasks that fall under exempt administrative duties should consider the authority of the employee to create, change, or interpret policies. Another indication is the importance of the employee's assignments when compared to the overall operations of the company.

Exempt Employee Rights

There are few rights and protections in place for exempt employees according to the FLSA rulings. One right they do have is they are required to get their full base salary during any pay period where they have performed job duties or work.

Employers can require exempt employees to work a specific schedule, make up missed work hours, and punch in and out for their scheduled shifts.

However, FLSA does limit how much time an employer can require an employee to work in their normal schedule.

Nonexempt Employee Rights

Employees who are considered nonexempt have several protections under the FLSA. They have the right to one and a half times their normal pay rate for any hours worked that puts them into overtime status. Overtime is defined as any hours above 40 that are worked in an employee's normal work week schedule.

Talk to a Lawyer

If you need help understanding the exempt salary test and the differences between exempt and nonexempt employees, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies such as Google, Stripe, and Twilio.