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Exempt and Non - Exempt Employees: What It Isn’t, What It Is *Hint, it is more than just paying a salary*    

Jenay Rhoads, SHRM-SCP, PHR

February 21, 2024





In my last blog, I spoke about the tests for determining whether a worker is an independent contractor or employee. Another aspect of classification is whether employees are exempt or non – exempt. A lot of confusion surrounds this topic, but it is crucial to understand these rules for employer compliance with the Department of Labor’s (DOL) minimum wage and overtime rules. I recently shared a snippet of the DOL’s 2023 statistics. If you missed it, you can see it below.


 

I cannot stress this enough; exempt does not mean that you pay an employee salary in order to avoid paying overtime. Giving an employee the title of manager does not necessarily mean they are exempt from overtime either. The terms exempt and non – exempt refer to whether an employee must be paid minimum wage and if they are eligible for overtime when they work over 40 hours in a week under the Fair Labor Standards Act (FLSA). Determining the employee’s status is done by ensuring that certain salary thresholds are met and the employee’s job functions meet the duties tests (requirements). If the employee meets ALL tests, then they can be classified as exempt from overtime and minimum wage and be paid the minimum salary required. There are several exemptions that an employee may fall under. Today I will discuss the following exemptions: executive, administrative, professional, highly compensated and computer employee exemptions. First though it is important to note that exemptions provided by under the FLSA apply only to “white – collar” workers. Non-management employees in blue-collar fields are not eligible for any exemption (regardless of how highly compensated).

The Tests for Exemptions (remember all tests must be met):

  • The employee must be compensated on a salary or fee basis of at least $684 per week;

  • The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

  • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

To qualify for the administrative employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis of at least $684 per week;

  • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

To qualify for the learned professional employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis of at least $684 per week;

  • The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;

  • The advanced knowledge must be in a field of science or learning; and

  • The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

To qualify for the creative professional employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary or fee basis of at least $684 per week;

  • The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

To qualify for the computer employee exemption, the following tests must be met:

  • The employee must be compensated either on salary or fee basis of at least $684 per week  or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;

  • The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;

  • The employee’s primary duty must consist of:

  1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;

  2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

  3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

  4. A combination of the aforementioned duties, the performance of which requires the same level of skills.

To qualify for the outside sales employee exemption, all of the following tests must be met:

  • The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

  • The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Highly compensated employees performing office or non-manual work and paid total annual compensation of $107,432 or more (which must include at least $684 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

Applying the tests is pretty straightforward, most issues arise when employers try to fit a role into an exemption. My advice, don’t try to fit a role into an exemption. Of course, roles can be modified to meet the tests, but that modification should be in practice and not just theory or on paper. If a company is involved in a DOL investigation, not only will the employer be interviewed regarding the duties of the position or positions in question, but the employee(s) will be as well. HR professionals and consultants, like myself, are qualified to work with companies to ensure that employees are properly classified and operations and budgets are not adversely affected by any needed changes to pay and/or roles.

If you are unsure whether your team is properly classified (or even if you questions regarding how you yourself are being paid), book a free consultation today and I will be happy to discuss your situation!

 

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