This topic is one that we continually receive questions on so we feel compelled to post information regularly on exempt and non-exempt status considerations. You can use the search bar on our site under the news tab to review past posts if you’d like to read more on this topic.
The Fair Labor Standards Act (FLSA) is a federal law requiring that most employees receive at least minimum wage for each hour worked and overtime pay for hours worked over 40 in a workweek. Some employees, however, are not entitled to overtime, while others are not entitled to overtime or minimum wage. Employees who are entitled to both minimum wage and overtime are called non-exempt, while those who are not entitled to both are called exempt.
The FLSA lists quite a few exemptions. The most commonly used (particularly in office settings) are the executive, administrative, and professional exemptions. These are known as white collar exemptions, and employees who are properly classified this way are not entitled to minimum wage or overtime. The administrative exemption is the hardest for people to understand because people general think it means those in an administrative capacity when it really means, those with decision making ability for the administration of the company. But, to qualify, each position must pass a three-part test:
- Duties: The employee must perform specific tasks (such as managing at least two people) and regularly use their independent judgment and discretion. Each exemption has its own duties test.
- Salary level: The employee must make at least $455 per week (equal to $23,600 per year).
- Salary basis: The employee must be paid the same each week regardless of hours worked or the quantity or quality of their work. Reducing an exempt employee’s pay is only allowed in very narrow circumstances.
If an employee meets all the criteria under one of the white collar exemptions, the employee may be properly classified as exempt and will not be entitled to minimum wage or overtime pay. If the employee does not meet all the criteria under a specific exemption, they must be classified as non-exempt, and paid at least minimum wage and overtime when applicable.
A very simple (not formal) way to consider exempt status is, if the employee meets the below criteria:
- They’re your boss
- They design workplace policies
- They decide rates of pay
- They decide on promotions
- They’re typically the ones that subordinate employees criticize behind their backs 🙂
- They do the work only a licensed professional can do.
- They provide higher-level consultation or guidance on matters of significance to clients, and the company has total faith in what these employees will say and employees can do so without having to get permission.