Snapshot of FLSA Exemptions

I. General

  • Employer does not have to pay employee overtime or minimum wage if an employee is properly classified as “exempt”.
  • Employee is “exempt” if he or she meets BOTH the salary test ($455/week or $23,660/year) AND exemption duties test, and an employer thorough job analysis has been performed.
  • Employer's job analysis should include the following actions:
  1. Review minimum qualifications established for the job, including education, on-the-job training and experience;
  2. Review prior job descriptions, job questionnaires and related documentation;
  3. Confirm with managers that duties and qualifications are accurate;
  4. Conduct workflow reviews—useful tool in ascertaining job functions, processes, job boundaries & organizational operations; schematics and charts can also prove to be helpful;
  5. Gather organizational charts for departments and positions being reviewed;
  6. Review policy manuals to determine functional autonomy of positions; and
  7. Gather prior performance reviews which document duties and responsibilities or respective positions.
  • If little is known regarding the history of a position or it has been inadequately documented, an employer should consider conducting a review of the position to bring it up to date. Recommended activities may include direct job duty observation, work function or work breakdown analysis, group or peer review of occupants sharing the classification, job banding/job progression plans, and work log analysis and job metrics.
  • Review state wage/hour laws for states in which the organization operates to ensure there is no conflict with state laws.

II. Salary Test

  • “Salary basis” means employee regularly receives predetermined amount of compensation each pay period on weekly, or less frequent, basis.
  • The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work.
  • Exempt employee must receive full salary for any week in which employee performs any work, regardless of the # of days or hours worked. Exempt employees do not need to be paid for any workweek in which they perform no work.
  • If employer makes deductions from employee’s predetermined salary, i.e., because of operating requirements of business, that employee is not paid on “salary basis.” If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

III. 5 Types of Principal Exemptions

  • Executive – Employee whose primary duty is to manage the business or a recognized department/entity and who customarily directs the work of two or more employees. Also includes individuals who hire, fire or make recommendations that carry particular weight regarding employment status. Examples: executive, director, owner, manager, supervisor.
  • Administrative – Employee whose primary activities are performing office work or non-manual work on matters of significance relating to the management or business operations of the firm or its customers and which require the exercise of discretion and independent judgment. Examples: coordinator, administrator, analyst, accountant.
  • Professional/Creative – Employee who primarily performs work requiring advanced knowledge/education and which includes consistent exercise of discretion and independent judgment. The advanced knowledge must be in a field of science or learning acquired in a prolonged course of specialized intellectual instruction. Creative professionals perform work requiring invention, imagination, originality and/or talent in a field of artistic endeavor. Examples: attorney, physician, statistician, architect, biologist, pharmacist, engineer, teacher, author, editor, composer, musician, artist.
  • Computer professional – Employee who primarily performs work as a computer systems analyst, programmer, software engineer or similarly skilled work in the computer field performing (a) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications; or (b) design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specification; or (c) design, documentation, testing, creation or modification of computer programs based on and related to user or system design specifications; or a combination of the duties described above, the performance of which requires the same level of skills. Examples: system analyst, database analyst, network architect, software engineer, programmer.
  • Outside sales – Employee who performs sales work off the company’s premises and whose primary duties include making sales or obtaining order or contracts for services or for the use of facilities for which the client or customer pays. This employee is customarily and regularly away from the company’s place of business while performing such duties. Examples: sales representative, account manager, business development representative.

IV. Example of an Exemption Evaluation--The Executive Exemption

  • The employee must be compensated on a salary basis as explained above; AND
  • The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise; AND
    Primary duty means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.
    Generally, management includes, but is not limited to, activities such as interviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision or control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the employees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.
    The phrase a customarily recognized department or subdivision is intended to distinguish between a mere collection of employees assigned from time to time to a specific job or series of jobs and a unit with permanent status and function
    The phrase customarily and regularly means greater than occasional but less than constant; it includes work normally done every workweek, but does not include isolated or one-time tasks.
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; AND
    The phrase two or more other employees means two full-time employees or their equivalent. For example, one full-time and two half-time employees are equivalent to two full-time employees. The supervision can be distributed among two, three or more employees, but each such employee must customarily and regularly direct the work of two or more other full-time employees or the equivalent. For example, a department with five fulltime nonexempt workers may have up to two exempt supervisors if each supervisor directs the work of two of those workers.
  • 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.
    Factors to be considered in determining whether an employee’s recommendations as to hiring, firing, advancement, promotion or any other change of status are given particular weight include, but are not limited to, whether it is part of the employee’s job duties to make such recommendations, and the frequency with which such recommendations are made, requested, and relied upon. Generally, an executive’s recommendations must pertain to employees whom the executive customarily and regularly directs. It does not include occasional suggestions. An employee’s recommendations may still be deemed to have “particular weight” even if a higher level manager’s recommendation has more importance and even if the employee does not have authority to make the ultimate decision as to the employee’s change in status.

V. Example of an Exemption Evaluation--The Administrative Exemption

  • The employee must be compensated on a salary basis as explained above; AND
  • The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operationsof the employer or the employer’s customers; AND
    Primary duty means the principal, main, major or most important duty that the employee performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.
    To meet the directly related to management or general business operations requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example from working on a manufacturing production line or selling a product in a retail or service establishment. This includes, but is not limited to, 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.
    Employer’s customers. Employees acting as advisors or consultants to their employer’s clients or customers — as tax experts or financial consultants, for example — may be exempt.
  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
    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. The term must be applied in the light of all the facts involved in the employee’s particular employment situation, and implies that the employee has authority to make an independent choice, free from immediate direction or supervision. Factors to consider include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval, and other factors set forth in the regulation. The fact that an employee’s decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment. The exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.
    Matters of significance refers to the level of importance or consequence of the work performed. An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer will experience financial losses if the employee fails to perform the job properly. Similarly, an employee who operates very expensive equipment does not exercise discretion and independent judgment with respect to matters of significance merely because improper performance of the employee’s duties may cause serious financial loss to the employer.