Determining Who Is Nonexempt and Exempt

from Labor Pains: Employer and Employee Rights and Obligations


by Ethan A. Winning. Copyright © 1995-2008

 

Updates: After October '04 Updates Are Found in Members' Section and Current "Labor Pains" Edition Only

 

 

The changes In a nutshell As of Aug. 23, 2004 and two decisions handed down in September 2006 emphasize the most important of all the criteria - from 1937 to 2007 - are discussed in the subscriber's section.


Federal Government Overtime Rules Under Fair Labor Standards Act - August 2004 - Does Not Apply in All States

 

Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act (FLSA)

This fact sheet provides general information on the exemption from minimum wage and overtime pay provided by Section 13(a)(1) of the Fair Labor Standards Act as defined by Regulations, 29 CFR Part 541.

The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week ($23,660 per year). Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.

See other fact sheets in this series for more detailed information on the specific exemptions for executive, administrative, professional, computer, and outside sales employees, and for more information on the salary basis requirement.

Executive Exemption

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

Administrative Exemption

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

Professional Exemption

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

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

Computer Employee Exemption

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

Outside Sales Exemption

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

Highly Compensated Employees

Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 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.

Blue Collar Workers

The exemptions provided by FLSA Section 13(a)(1) apply only to “white collar” employees who meet the salary and duties tests set forth in the Part 541 regulations. The exemptions do not apply to manual laborers or other “blue collar” workers who perform work involving repetitive operations with their hands, physical skill and energy. FLSA-covered, non-management employees in production, maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers are entitled to minimum wage and overtime premium pay under the FLSA, and are not exempt under the Part 541 regulations no matter how highly paid they might be.

Police, Fire Fighters, Paramedics & Other First Responders

The exemptions also do not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, fire fighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work.

Other Laws & Collective Bargaining Agreements

The FLSA provides minimum standards that may be exceeded, but cannot be waived or reduced. Employers must comply, for example, with any Federal, State or municipal laws, regulations or ordinances establishing a higher minimum wage or lower maximum workweek than those established under the FLSA. Similarly, employers may, on their own initiative or under a collective bargaining agreement, provide a higher wage, shorter workweek, or higher overtime premium than provided under the FLSA. While collective bargaining agreements cannot waive or reduce FLSA protections, nothing in the FLSA or the Part 541 regulation relieves employers from their contractual obligations under such bargaining agreements.


Subscribers: For a full discussion of the changes to the FLSA in 2004-2006, see "Changes in Regulations and Steps to Take Until They Become Final."


Exemptions From the Fair Labor Standards Act - 1937 to 2004 and most still in effect in 17 states

 

Time is money. Overtime is money times 1.5. Vacations and holidays are money for which no work is done. Then there's sick leave, maternity leave, jury duty, and all kinds of other time away from the job.

It's no wonder that time at work, time away from work, and the accrual of various periods of time off are of concern to employers and employees. And, it does indeed get confusing. There is basically one federal law which regulates time, The Fair Labor Standards Act of 1938 (which also regulates child labor), but many states have their own regulations which go beyond federal law. So, in addition to trying to figure out who is exempt or not exempt (nonexempt) from that federal law, one must also make a determination as to who is exempt or not exempt from state regulations.

As much as eighty percent of all questions regarding conditions of employment, e.g., hours of work, vacations, etc., have to do with overtime. While exemptions from the federal Fair Labor Standards Act are often difficult to understand (and determine), overtime regulations are fairly straight-forward but for some reason continue to create confusion. Failure to pay overtime is one of the leading causes of claims against employers, probably more than wrongful discharge, harassment, and stress combined. That of course is not so unusual since potential problems with overtime come with every pay period.

Employers and employees have so many questions regarding and a stake in overtime laws that a chart of the various state laws seems appropriate. Below is a listing of each state and the District of Columbia which displays the state law and the state labor agencies to contact if further information is needed. [The chart was not reproduced on this web page, but is found in the book, Labor Pains.]

Federal law, which applies to almost all businesses involved in interstate commerce, is usually applied when states do not have their own overtime regulations. Therefore, many businesses which are not affected by interstate commerce laws - restaurants for example - would be exempt from overtime provisions of the federal law. If there is no state law as well, then there are no overtime provisions. The reader should note that there are many exemptions to the state laws and wage orders. Examples: In Arkansas, employees who work for hotels, motels and restaurants do no receive overtime until they work in excess of 48 hours in a week; employees in Maryland who work for amusement parks or recreational establishments are exempt from the overtime laws; in Ohio, special rules apply to county workers; and in Pennsylvania, salespersons, parts men and mechanics in retail car dealerships as well as taxi drivers, radio and television news editors and announcers are exempt from the overtime provisions. In other words, every state with overtime laws has exemptions having nothing to do with the federal Fair Labor Standards Act.

Other articles on this site which attempt to clarify issues regarding exemptions are: "Salaried, But Still Nonexempt" and "A Title and 37¢ Will Buy You a Stamp", and "Docking Exempt Employees" (Subscribers Only).

Exempt Classifications Under The Fair Labor Standards Act

Q. Can you explain the difference between an exempt and a non-exempt employee? As an Office Manager in a three-person office, I feel that I am non-exempt and should be paid overtime. The owner of the business disagrees.

A. Since this is one of the on-going concerns of employees and employers, I'll attempt as brief a description of the differences as possible. There are three classifications of exemption from the FLSA: Exempt Executive (or Managerial), Exempt Administrative, and Exempt Professional. [The one that's been giving us fits for the past 5 years is the latter exemption.] Third, there are five or six criteria for each exemption and all must be met simultaneously. If an employee does not meet even one of the criteria, he or she is not exempt (non-exempt) from the provisions of the law. Last, title is of no significance at all, and wages are the least important provision. One need only make $455 a week (Aug. 23, 2004) to meet the wage criteria. (This has been considerably increased in California. See same article in Subscriber's section)

Paraphrased from the law, the criteria for being an Exempt Executive are as follows:

  1. The primary duty consists of the management of an enterprise or of a customarily recognized department or division by which he is employed; and
  2. who customarily and regularly directs the work (i.e., supervises) two or more employees; and
  3. who has the authority to hire and fire other employees, or whose word in such decisions is given weight; and who customarily and regularly exercises discretionary powers; and
  4. who does not devote more than 20% of his hours to work described in (1)-(3);
  5. and who is compensated on a salary basis of not less than $455 a week.

An Exempt Administrative Employee is one whose primary duty consists of

  1. the performance of office or non-manual work directly related to management policies or general business operations of his employer or his employer's customers;
  2. and who customarily and regularly exercises discretion and independent judgment;
  3. and who performs only under general supervision;
  4. or whose work is along specialized or technical lines requiring specialized training, experience or knowledge;
  5. and/or who executes special assignments and tasks under only general supervision; and who is compensated at the rate of $455 a week

Exempt Professional Employees are those employed in a bona fide professional capacity

  1. whose primary work requires knowledge of an advanced type in a field of science or learning customarily acquired through a prolonged course of intellectual instruction and study, as distinguished from a general academic education and from training in the performance of routine mental, manual or physical processes;
  2. and/or work that is original and creative in character in a recognized field;
  3. and whose work requires discretion or judgment in its performance; and work which is predominantly intellectual and varied in character and is of such character that the output produced cannot be standardized in relation to a given period of time;
  4. and who does not devote more than 20% of his time to nonexempt activities;
  5. and who is compensated at the rate of $455 a week.

The Professional Exemption has usually been relegated to thirteen professions (including teaching) which normally require licenses to practice; e.g., law, medicine, psychologist, etc. Oddly, it does not include most nurses. It now includes computer programmers and systems analysts with special compensation provisions. (See subscriber's article, "Computer Professionals, Exempt or Nonexempt") Reduced even further, most employees who supervise two or more persons, who can hire and fire, who supervise a specialized function, who are professionally licensed and, most important, who regularly make decisions or judgments without prior approval, and who are paid the pittance required will be exempt. The titles Administrative Assistant, Secretary, Executive Secretary or Office Manager mean nothing by themselves. If all the criteria are met, then the employee would be exempt, keeping in mind the provision that up to one day in five can be worked in non-exempt endeavors. And to get ahead of other questions, yes it is possible to be non-exempt during part of a week and exempt during the remainder. In such an instance, the employee would have to be paid overtime if, during the non-exempt portion of the pay period, the employee worked more than eight hours in a day.

The requirements of the Fair Labor Standards Act are just one more reason why job descriptions are so important even in the smallest of companies.


Fair Labor Standards Act Q&A

Answers to be found in "Labor Pains" and Subscriber's section only...

 

Q. Is it possible to be exempt and nonexempt at the same time? I know that that may sound like a peculiar question, but aren't there times when, even though I'm a manager, I could be doing nothing but non-managerial jobs?

Q. We have an employee who supervises the accounting department, but no employees. Can she still be exempt?

Q. Can we give comp time in lieu of overtime to our nonexempt employees?

Q. If we send a nonexempt employee out of town for a seminar, is travel time considered time worked and do we have to pay overtime for the travel time?

Q. An employee is out sick on Tuesday, but works full days the rest of the week including 10 hours on Friday. Do we owe overtime for a 42-hour workweek?

Q. We have an employee who is a Senior Administrative Assistant. She meets all the criteria except for decision making. Is she still exempt?

Q. What are the rules regarding meal breaks and rest breaks? Do the rules differ for part-time and full-time employees? We have too many employees returning late from lunch and dinner breaks. Can we require employees to take their meal periods (especially dinner) on company premises?

Q. We have a policy that non-exempt employees will get compensatory time off in lieu of overtime. It will be paid at premium rates; that is, if the employee accrues one hour of comp time, he or she will be able to take one and one-half hours of comp time off. One of our employees has complained that this is illegal, that the company cannot substitute comp time for overtime. Is he right?

Q. Our company's policy has always been to allow exempt employees compensatory time off for working in excess of 40 hours in a week. This is to make the situation more tolerable for our officers who sometimes put in as much as 60 hours. However, I must admit that it's become a nightmare in terms of keeping track of who's doing what, where, and when. Do you have a better system which you'd be willing to share with us?

Q. A large group of us is employed in a unionized warehouse facility. Recently, at the end of his shift, an employee was told that overtime was mandatory! The employee said that he couldn't work OT since he wasn't feeling well. The supervisor reprimanded the employee and gave him a three-day suspension without pay. Our contract requires 24-hour notice of overtime where practical. We realize that customer service is important; however, where does the law draw the line on how long a company can require employees to work overtime? I would appreciate your help in the following areas: What are employee rights governing work hour requirements? What references are there under federal or state laws? Do they supersede union contracts? Are there any restrictions on sleep requirements when employees are required to work double shifts, Saturday night/Sunday morning? Can disciplinary action be taken against employees who fail to report on their scheduled day(s) off when called by the company?

Q. I have several commissioned employees who also receive a draw against that commission. One of them recently told me that he was entitled to overtime for any time over 40 hours in a week. Is this true? R.A. (California)

 


 

The foregoing represents some of the more than 50 questions just about overtime that are answered in Ethan Winning's book, Labor Pains: Employer and Employee Rights and Obligations

 


All Rights Reserved. Copyright © 1995-2008. E. A. Winning Associates.