FLSA Status: Everything You Need to Know
FLSA status refers to whether or not an employee is considered exempt or nonexempt by the Fair Labor Standards Act. 8 min read
2. Exempt vs. Nonexempt
3. The Exemption Test
4. Determine Whether an Employee is Exempt or Non-Exempt
5. Salary Level Test and Salary Basis Test
6. Duties Test
7. Three Categories That Are Exempt from Job Duties
8. Exempt Executive Job Duties
9. Exempt Administrative Job Duties
FLSA status refers to whether or not an employee is considered exempt or nonexempt by the Fair Labor Standards Act. This law covers minimum wage, overtime pay, hours worked by the employee, record keeping, and youth employment standards for employees both in the private sector and in federal, state, and local governments. The Fair Labor Standards Act (FLSA) is administered by the Wage and Hour Division of the Department of Labor (DOL).
Exempt vs. Nonexempt
Every employee, under FLSA law, is either “exempt” or “nonexempt”. A nonexempt employee does not receive overtime pay, but an exempt employee does have entitlements to overtime pay. An overwhelming majority of employees under FLSA are nonexempt. By definition, there are certain jobs that are automatically exempt. An outside sales employees is an example of an exempt employee whereas an inside sales employees is nonexempt. In general, exempt or nonexempt status is based on what job duties are being performed, how much the employee is getting paid, and how they are getting paid.
To qualify as an exempt employee, you have to make a minimum of $23,600 annually, be assigned specifically exempt job responsibilities, and be paid a salary. More information on exemption rules can be found in the FLSA Regulations from the United States Department of Labor. Within states, there are additional hour and wage laws that will have to be met along with the FLSA requirements. If you are a business owner who doesn’t want to have legal issues, it is important to brush up on your knowledge of current state hour and wages laws as well as the federal laws. Aside from exempt and nonexempt employees, there are other classifications for worker. Just a few of the most common examples include temps, trainees, interns, volunteers, and independent contractors.
The Exemption Test
You can find out if certain employers are not required to pay overtime (exempt) or are required to pay overtime pay (non-exempt) by using the Administrative Test, Professional Test, Executive Test, Computer Test, and Outside Sales Test, all of which are provided by the FLSA. Until an employer fills out an exemption test, all jobs under that employer will be considered nonexempt.
Determine Whether an Employee is Exempt or Non-Exempt
The majority of employers prefer employing everyone and being able to classify them as exempt. This tends to be simpler for payroll and virtually all companies see exempt as better than non-exempt. It is a bad idea to think you could legally get away with all of your employs being classified as exempt since there is a good possibility that at least one employee could be considered non-exempt. It is a good idea to review the updated FLSA regulations and confirm your business is complying with this law.
Salary Level Test and Salary Basis Test
If you employ someone who makes more than $100,000 yearly, it is highly likely that they classify as exempt. If there is a “guaranteed minimum” amount that your employees earn that they know they will get for their work, this is typically considered a salary. Sometimes, there is further research that needs to be done to confirm that the employee being salaried is indeed factually correct. Even if the employee’s pay is based on hourly rates, they are still considered salaried so long as they can confidently know that they are getting a “guaranteed minimum” for their weekly work.
If you pay your employees more than the originally agreed up salary amount, this typically does not result in any conflicts because nothing is being reduced from the base pay amount. Employers are not allowed to dock a portion of an employee’s salary because of their work quality or quantity (although there have been rare instances when this has occurred). Additionally, if there is “no work” for an employee to perform (like time when things are slow for the company), this is not a valid reason to reduce the employee’s pay. Employers are permitted to reduce their employee’s amount of pay for reasons such as unpaid sick leave, personal leave, or suspensions. There are both “impermissible” and “permissible” reasons to reduce base salary. An employee’s exemption status is not affected by permissible reductions.
Typically, exemptions from the FLSA are reserved for anyone who works a high-level job. What the employee’s job description or title is really isn’t of importance when determining what makes a job high-level. For example, if someone is a secretary, they are still a secretary even if they are called an, “administrative assistant”. And someone who is a CEO of a small company might still perform janitorial tasks from time to time. For the duties test, the job duties have to be reviewed as well as how those duties match up with the employee's overall responsibilities.
Three Categories That Are Exempt from Job Duties
- Executive job duties.
- Professional job duties.
- Administrative job duties.
Exempt Executive Job Duties
An employee performs exempt job duties if they manage a team of two or more employees underneath them. Basically, if the employee’s job position is heavily management-related, they are performing exempt job duties. Additionally, if the employee has a good deal of say regarding management matters (like firing, promoting, and hiring), that employee is considered exempt. Supervising other employees must be a routine part of the employee’s daily tasks to be exempt. If the employee is supervising anyone who isn’t actually an employee, they are not considered exempt. As a general rule of thumb, remember that the employee has to meet the “two employee” supervision standard to be considered exempt. Two employees could mean either two full-time employees or several part-time employees who total to two full-time employees. Simply using the word “supervision” isn’t enough to lead to exemption. Below is a list of some basic duties that the FLSA Regulations categorizes under management:
- Interviewing and reviewing job candidate
- Hiring job candidates
- Training new employees
- Determining work schedules and pay rates
- Dealing with complaints and grievances from employees
- Reprimanding employees
- Deciding on work techniques
- Planning work responsibility
- Delegating work to employees
- Deciding the types of equipment and materials being used to perform work tasks
- Creating budgets
- Following legally and regulatory standards and ensuring they are being met in the workplace.
- Creating a secure, safe work space for employees.
Every situation is different therefore deciding if the main responsibility of an employee is management will vary from case-to-case. Basically, you can tell if an employee has management responsibilities by looking around the work place and looking for the person who looks like they are running the operation. The person who communicates directly with the boss is probably the person with the most management responsibility. In most cases, there is only one person in charge at a time. For example, if there is both a sergeant and lieutenant working in the same unit at the same time, the lieutenant is the person in charge. Even if an employee performs “normal” job duties, they could still be classified under management. If a fast food manager is running the night shift, they may tend to typical fast food responsibilities such as taking a customer’s order, yet be the person to make executive decisions.
To qualify for executive exemption, the employee in question must have authentic influence regarding personnel matters. Essentially, if the employee regularly weighs in on big decisions regarding human resources and management, that employee is probably exempt. When an employee routinely deals with the higher-ups of the company and discusses management topics with them including assigning job duties, hiring, and firing, that employee probably has exemption status. Another time someone may qualify for exemption is if one of business owners (who owns a minimum of 20% of the company) is actively involved in management.
Anyone considered to have “learned professions” has exempt status as well. Examples of “learned professions” include dentists, doctors, lawyers, architects, teachers, clergy, accounts (bookkeepers are not included), registered nurses (LPNs not included), scientists (technicians not include), scientists, actuaries, and pharmacists. If someone’s work relies heavily on their intellect and academia as well as their ability to judge and act discreetly, they probably fall under the exempt status. For these individuals, they must hold a high school degree and typically an advanced degree beyond their university degree. Although advanced degrees are not always necessary, they are regularly used as a tool to measure someone’s professional level.
There are certain instances when an exempt employee does not require further academic training to be considered a qualifier for professional exemption. These individuals are referred to as “creative professionals”. Some examples of creative professionals are the following: writers, musicians, composers, cartoonists, artists, actors, and, in some cases, journalists. When a person’s job duties include being imaginative, talented, and inventive, they might fall under the “creative professional” category. Being able to identify whether or not someone meets the requirements for professional exemption is usually relatively easy. However, there are certain cases when it gets a little tricky. Journalists and commercial artists, for example, might not always fall under the exemption category and there are certain factors that influence why they are either exempt or nonexempt.
Exempt Administrative Job Duties
Of all the factors that make determining the definition of exemption difficult, administrative job responsibilities is among the highest. According to the FLSA regulations, the following are examples of administrative job responsibilities that would be classified as exempt:
- Office duties that are not related to manual labor and that are directly responsible for operating the business and managing the employees of the business.
- In all of these office tasks, there are important qualities that must routinely be displayed, judgement and description being among the top.
- In most cases, you will find employees at the higher level who qualify for administrative exemption. These employees are vital for keeping business operations running smoothly. One way to make determining if an employee qualifies for administrative exemption easier is seeing if they do more operational work or production work. If an employee makes the products or services that the business sells, they do not fall under the administration category. It’s the employees that support production employees that usually qualify for administration exemption. In general, an administrative employee is not a line employee, but a staff member.
Some administrative responsibility examples include the following:
- Managing human resources/personnel and labor relations
- Records maintenance
- Payroll and finances (which includes creating budgets)
- Accounting and tax
- Quality control
- Public relations
- Marketing and advertising
- Legality compliance
- Specific computer-related tasks (i.e. administration of database, network, and internet)
Someone who is considered a clerical employee usually works in the office doing work that does not require physical labor, yet that doesn’t necessarily make them qualifiers for administrative exemption. Much of a company’s financial well-being falls on the shoulders of administrative employees because if that employee does not do well on the job, it could negatively affect the employee’s financial state. As stated previously, a person must routinely make sound judgment calls and important business decisions if they want to qualify for administrative exemption.
Important questions to ask when attempting to determine if an employee qualifies for administrative exemption include:
- How said employee’s job responsibilities influence the wellbeing of the entire company. An example of this is, “does the employee buy a new stapler for the office or 500 new dresses for the company clothing line?”
- Can the employee commit their boss or company to a project or business deal that would significantly impact the company’s financial state?
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