The Fair Labor Standards Act (FLSA) sorts all covered workers into one of two categories: exempt, or nonexempt.
While there are a number of requirements under the law, the FLSA’s best-known mandates deal with wages. Nonexempt employees must be paid a minimum wage, plus overtime pay at 1.5 times their regular rate of pay for all time worked beyond 40 hours in a week, so it is important to accurately and appropriately identify which of your employees belong in each group.
It’s also important to note that while almost all employers must follow the FLSA, certain employees are exempt from overtime pay by statute, including teachers with a primary duty of teaching, tutoring, instructing or lecturing and auto salesmen, partsmen or mechanics primarily engaged in selling or servicing automobiles.
What makes an employee exempt?
For employees whose overtime eligibility is not specifically addressed by the law, overtime exemption must pass a three-prong test.
- Pay of at least $23,600 per year ($455 per week). If your employee makes less than this amount and is in a job subject to the provisions of the FLSA, you must consider them nonexempt.
- Paid on a salary basis, which means you regularly pay them a guaranteed, fixed amount that is not reduced based on the hours they work or the quality of their work.
- Perform primarily exempt duties. Exempt duties are primary job functions in one of the following categories.
Executive employees may be considered exempt if the primary duty of their job includes: the supervision of two or more full-time employees (or part-time equivalents), management responsibilities, and authority to hire or fire or make recommendations on hiring or firing that are given weight in the decision-making process.
The administrative exemption is reserved for jobs with a primary duty of office work directly related to the general operation or management of the business. Such primary duties must include the exercise of discretion and independent judgment with respect to matters of significance, which means that clerical, secretarial and support employees are unlikely to be exempt.
Exempt professional employees are those whose primary duties require advanced knowledge in a field of science or learning, typically earned through courses of study leading to advanced degrees. These fields include law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other occupations.
Other employees may qualify as exempt under the creative professional exemption because their primary job duties involve work which requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
Computer Employee Exemption
If you employ professionals whose work is focused on the computer field or whose primary duty is designing, developing, creating, or documenting computer systems or programs, they may be exempt under the computer employee exemption. Note that while computer systems analysts, computer programmers, software engineers and other similarly skilled workers may qualify as exempt, first-line help desk or support technicians are unlikely to be exempt under these rules.
Your exempt employees are not entitled to overtime pay under the FLSA, but you must take care to determine whether there are any applicable state laws which would entitle them to such pay.
For more information about the FLSA, including different types of exemptions, the Department of Labor’s Wage and Hour Division has composed this Handy Reference Guide to the Fair Labor Standards Act.
This information is intended to be educational. It is general in nature and should not be considered financial, legal or tax advice. Consult an attorney or a tax professional regarding your specific situation. This blog is up to date as of February 2022 and has not been updated for changes in the law, administration or current events.