FLSA Exempt and Nonexempt Defined

FLSA exempt status refers to the state of being exempt from the protection provided by the Fair Labor Standards Act.

The Fair Labor Standards Act (FLSA) is best known as the law determining the exempt or nonexempt status of jobs and overtime requirements. It covers several aspects of employment in both the private and public sectors, including:

  • Minimum wage
  • Overtime pay
  • Hours worked
  • Record keeping
  • Youth employment standards

According to FLSA rules, nonexempt employees are entitled to the minimum wage, as well as overtime pay for all time worked above 40 hours a week. They must be paid time and a half of their regular pay rates for each additional hour worked. Exempt employees are not protected by the FLSA and therefore are not eligible for overtime pay.

Exclusions from FLSA Coverage

The FLSA does not apply to every job, but it governs most jobs. Some jobs are excluded by statute, while certain jobs covered by it are regarded as exempt from its overtime rules. Examples of jobs that are excluded include:

  • Movie theater employees
  • Outside sales employees
  • Some agricultural workers
  • Most railroad workers
  • Many truck drivers
  • Other employees governed by other specific federal labor laws

Determining Exempt or Nonexempt Status

Employees who hold jobs covered by the FLSA can be exempt or nonexempt. In order to obtain FLSA exempt status, employees must meet three requirements stated in the FLSA Regulations, which include:

  • Salary level test
  • Salary basis test
  • Duties test

Salary Level Test

Employees who earn an annual income of $23,600 or a weekly wage of $455 are mostly nonexempt. On the other hand, those who are paid more than $100,000 a year are almost surely exempt.

Salary Basis Test

In general, employees who are paid on a salary basis are exempt from FLSA. They are considered salaried workers if they are able to count on receiving a "guaranteed" minimum amount of money for any week in which they perform some amount of work. The amount does not have to be the entire salary, but it must be a certain amount that employees can count on receiving.

The definition of "salary basis" depends on whether or not an employee's base pay is calculated by dividing an annual figure by the number of paydays within a year. It also depends on whether his or her actual pay is less in work periods when he or she works less than the normal hours of work. Status as a salaried worker is not affected by whether or not the employee's pay is expressed in hourly terms, which is a common requirement of payroll computer programs.

The FLSA salary basis test only applies when monetary amounts are reduced. Charging absences to leave accruals is not regarded as a reduction of pay because the monetary amount on the paycheck remains the same. Likewise, an employee receiving more pay than the guaranteed salary amount is generally not considered to be inconsistent with the status of salary basis, because it does not result in a reduction in his or her base pay.

Except for certain circumstances, the base pay of a salaried employee cannot be reduced based on the quantity or quality of work performed, as long as he or she performs some work. This often means that the employee's base pay may not be reduced if he or she performs less work than normal, provided that the reason for it is determined by his or her employer. For instance, the base pay of a salary basis employee cannot be reduced if he or she has no work to perform due to reasons such as plant closure or slow business.

Employers can "dock" their salaried employees' base pay in full-day increments for a number of reasons, including:

  • Disciplinary suspension
  • Personal leave
  • Sickness, in cases where accrued sick leave has run out

Reductions in salary basis pay can be permissible or impermissible. Permissible reductions have no impact on the exempt status of an employee while impermissible reductions may. An employee subjected to impermissible salary reductions is generally not considered a salaried worker and is therefore nonexempt.

Employers can take measures to "cure" impermissible salary reductions to make it less likely that exempt employees will become nonexempt due to salary basis pay problems. It is important to note that the salary basis pay requirement for FLSA exempt status is not applicable to certain jobs. For example, schoolteachers, doctors, and lawyers are exempt even if they are paid hourly.

Duties Tests

Employees who meet the requirements of the salary level test and the salary basis test will be regarded as exempt only if they also perform exempt job duties. However, FLSA exemptions are usually limited to relatively high-level employees.

Whether or not the duties of a certain job are considered exempt depends on their nature. Job designations have little to no impact in this determination. Only the actual job tasks and how they "fit" into an employee's overall operations will be evaluated. Generally, there are three categories of exempt job duties, which are:

  • Executive
  • Professional
  • Administrative

Exempt Executive Job Duties

Executive job duties are FLSA exempt if they involve:

  • Supervision – Supervision must be performed regularly as part of the job and provided for other employees and not non-employees. Also, the executive must either supervise two full-time employees or the number of part-time employees equivalent to two full-time employees.
  • Management - Mere supervision is not enough to make an executive qualify for FLSA exemption; he or she must also perform management duties as a primary responsibility. Determining whether or not an employee meets the "management" requirement of the duties test requires case-by-case evaluation. In general, an employee will be exempt if he or she is "in charge" of a certain department or subdivision of an enterprise and performs the following duties.

- Interviewing

- Selecting

- Training

- Setting work hours and pay rates

- Maintaining sales or production records beyond mere clerical work

- Planning work budgets

- Planning work

- Determining the types of equipment and materials to be used

- Determining work techniques

- Apportioning work among employees

- Appraising productivity

- Monitoring work to ensure legal or regulatory compliance

- Ensuring safety and security in the workplace

- Disciplining employees

- Handling employee complaints and grievances

  • Provision of impactful input into personnel matters – The employee does not necessarily have to be the final decision maker on personnel matters, but his or her input should be given considerable weight. Usually, it means that providing personnel recommendations is part of his or her regular job duties. Such recommendations can be provided for different aspects of personnel management, including:

- Hiring

- Work assignment

- Training

- Promotion

- Transfer

- Firing

Exempt Professional Job Duties

Professionally exempt job duties refer to duties that:

  • predominantly require intellectual ability
  • need specialized education
  • involve the exercise of judgment and discretion
  • require education above high school and usually above college
  • belong to fields that are more academic than skilled trades or mechanical arts

Advanced degrees are a common consideration when determining the exempt status of professional job duties. However, this is not absolutely necessary in the case of employees who have attained advanced education through other means and can perform essentially the same kind of duties as employees with advanced degrees. In general, there are two types of professional job duties that qualify for exemption, namely:

  • Duties of traditional learned professions, such as:

- doctors

- dentists

- registered nurses (not LPNs)

- pharmacists

- lawyers

- teachers

- architects

- engineers

- accountants (not bookkeepers)

- actuaries

- scientists (not technicians)

- clergymen

  • Duties of creative professionals, such as:

- actors

- musicians

- composers

- writers

- some journalists

- cartoonists

- inventors

Exempt Administrative Job Duties

The exempt status of administrative duties is difficult to determine because the requirements are somewhat imprecise. According to the FLSA Regulations, administrative duties have to meet the following criteria in order to be considered exempt.

  • office or non-manual work
  • work directly related to the general operation or management of the employer's or the employer's customer's business
  • duties involving independent judgment or discretion
  • involvement in matters of significance

Administrative exemption typically applies to relatively high-level employees whose primary responsibility is to keep a business running. It can be determined by distinguishing administrative employees from production or operational employees. Basically, employees who make the products that a business sells are not administrative employees.

Administrative employees' main responsibility is to provide support to production and operational employees. As such, they are "staff" employees instead of "line" employees. Some examples of administrative functions include:

  • human resources and labor relations
  • payroll and finance, including budget and benefits management
  • accounting and tax
  • records maintenance
  • marketing and advertising
  • public relations, including shareholder, investor, and government relations
  • quality control
  • legal and regulatory compliance
  • computer-related duties, such as database, network, and internet administration

Not every employee who performs administrative work will be administratively exempt. For instance, clerical employees perform office, non-manual, or support work, but they are not exempt. This is because they are not required to exercise judgment and discretion, and make independent decisions on matters that significantly affect a business.

Similarly, most secretaries are not exempt either. However, some secretaries may be high-level employees who are administratively exempt. For example, a secretary to the CEO may be required to make important decisions.

Other duties that are typically not regarded as administratively exempt include:

  • answering telephones
  • filling out forms
  • filing
  • making travel arrangements
  • preparing routine reports
  • working on customer help desks
  • routinely ordering supplies
  • selecting suppliers

Rights of Exempt Employees

According to the FLSA overtime rules, exempt employees have no rights at all. Also, the FLSA does not prohibit an employer from requiring an exempt employee to work according to a particular schedule, punch a clock, or make up work time lost due to absences. Additionally, it does not limit how much work time an employer requires or expects from an employee.

Important Changes to FLSA Exempt Status and Overtime Regulations

The U.S. Department of Labor imposed new regulations to update the FLSA in 2016. Under these regulations, any employee who earns less than $47,476 a year will be eligible for overtime pay. This means that the minimum salary level for exemption has been increased from $455 to $913 a week and the minimum annual income for the highly compensated exempt status has been raised from $100,000 to $134,004.

Starting from January 1, 2020, the minimum salary levels will be adjusted once every three years. This is to ensure that the minimum salary levels will remain at the 40th percentile of the incomes of full-time salary basis workers in the census region with the lowest wages, which is currently the South. Also, it will keep the highly compensated minimum annual income levels to the 90th percentile of salaried full-time employees nationally.

Also, the new regulations have changed the salary basis test to enable employers to use incentive payments, commissions, and nondiscretionary bonuses to satisfy up to 10 percent of the newly imposed minimum salary level.

Wage and Hour Law Enforcement

The provisions of the FLSA are interpreted and enforced by the U.S. Department of Labor, which investigates complaints and sometimes sues when it finds violations. Many states also have agencies that enforce state labor laws and investigate complaints regarding FLSA exempt or nonexempt status.

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