Who Are Exempt Employees Under The FLSA?
The Fair Labor Standards Act of 1938, 29 U.S.C. §§ 203 et seq. (commonly known as 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 not less than time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek. For more information regarding federal minimum wage and overtime, click here.
But there are some exceptions, or exemptions, provided under the FLSA for certain categories of employees. Therefore, these employees are often called “exempt employees.” The FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional employees. Also, certain computer employees and outside sales persons are also exempt from federal minimum wage and overtime requirements.
Who are “Exempt” employees under the FLSA?
To qualify for exemption, employees must be paid on a salary basis at not less than $684 per workweek ($107,432 per workweek) and must be employed with certain specific job duties:
Executive Exemption: To qualify for the executive employee exemption, an employee must:
- manage the enterprise, or manage a customarily recognized department or subdivision of the enterprise;
- customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and
- 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.
Examples of executive employees include general managers, corporate-level executives, or any other department head.
To read more about the “Executive Exemption” under the FLSA, please see U.S. Department of Labor Fact Sheet #17B.
Administrative Exemption: To qualify for the administrative employee exemption, an employee must:
- perform 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.
The work “directly related to management or general business operations” requirement includes work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, Internet and database administration; legal and regulatory compliance; and similar activities. And the “exercise of discretion and independent judgment” involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered.
Examples of administrative employees include accountants, controllers, marketing directors, and IT directors.
To read more about the “Administrative Exemption” under the FLSA, please see U.S. Department of Labor Fact Sheet #17C.
Professional Exemption: To qualify for the professional employee exemption, an employee must be learned professionals and creative professionals
A learned professional must meet the following requirements:
- 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.
“Work requiring advanced knowledge” means work which is predominantly intellectual in character, and generally uses the advanced knowledge to analyze, interpret or make deductions from varying facts or circumstances. The “fields of science or learning” include law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical and biological sciences, pharmacy and other occupations that have a recognized professional status and are distinguishable from the mechanical arts or skilled trades where the knowledge could be of a fairly advanced type, but is not in a field of science or learning. The learned professional exemption also only includes professions where specialized academic training is a standard prerequisite for entrance into the profession.
A Creative Professional’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. This requirement depends on the extent of the invention, imagination, originality or talent exercised by the employee.
Examples of professional employees include teachers, lawyers, doctors, actors, musicians, and scientists.
To read more about the “Professional Exemption” under the FLSA, please see U.S. Department of Labor Fact Sheet #17D.
Computer-Related Occupation Exemption: To qualify for the Computer-Related Occupations exemption, an employee must be a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing one or more of the following duties:
- The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
- 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; o r
- The design, documentation, testing, creation or modification of computer programs related to machine operating systems.
The computer employee exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment.
To read more about the “Computer-Related Occupations” under the FLSA, please see U.S. Department of Labor Fact Sheet #17E.
Outside Sales Employee Exemption: To qualify for the Outside Sales Employee exemption, an employee must:
- making sales 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.
This exemption is meant to cover a sales person who makes sales in a customer’s place of business or home, such as a door-to-door sales person.
To read more about “Outside Sales Employee” under the FLSA, please see U.S. Department of Labor Fact Sheet #17F.
What can I do if I believe I was misclassified as an exempt employee?
Employers often misclassify works as “exempt” employees to avoid paying overtime wages of their employees. If you do not meet the requirements of the executive, administrative, professional, computer, and outside sales persons exemptions, you are entitled to overtime wages. It does not matter if you are paid based on salary or some other compensation plan; you still are entitled to overtime. For more information regarding calculating overtime under FLSA, click here.
Employers may also misclassify employees as “independent contractors.” Independent contractors are individuals who engage in their own businesses and sell their services to other companies. Employees who are misclassified as independent contractors are denied access to critical benefits and protections they are entitled to by law, such as the minimum wage, overtime compensation, family and medical leave, unemployment insurance, and safe workplaces.
Independent contractors are differentiated from employees under the “economic reality” test. When determining whether a person is an employee, a Court will consider the following factors:
- The extent to which the services rendered are an integral part of the principal’s business.
- The permanency of the relationship.
- The amount of the alleged contractor’s investment in facilities and equipment.
- The nature and degree of control by the principal.
- The alleged contractor’s opportunities for profit and loss.
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
- The degree of independent business organization and operation.
To read more about “Misclassification” under the FLSA, please see U.S. Department of Labor Fact Sheet #13.