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FLSA Exemptions Explained

FLSA Series Part 1: Exempt or Non-Exempt Classifications

This is the first of a series of articles explaining the Fair Labor Standards Act, FLSA, or the Wage and Hour Law. It is the FLSA that defines at the federal level the distinction between exempt and non-exempt employees. Non-exempt employees are covered by the FLSA rules while exempt employees are not. Exempt employees are exempt from being paid for over time worked and are instead expected to perform their required work, regardless of the time needed to do it.

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To qualify for the exempt classification, employees must perform exempt duties, be paid on a salary basis without improper deductions, and for most of the exemptions, be paid a minimum salary requirement of $455 per week.

There are six ways under the FLSA to justify an employee’s job being classified as exempt. These exemptions defining exempt primary duties are:

1. Executive
2. Administrative
3. Professional
4. Highly Compensated
5. Outside Sales
6. Computer

Let’s review each.

1. The Executive Exemption

This is for your senior managers whose primary duty is running the organization, department, or subdivision. They have the authority to hire and fire other employees, as well as affect promotional decisions. They must have at least two full-time direct reports or their equivalent.

2. The Administrative Exemption

This is a position that requires exercising independent judgment and discretion in “matters of significance” performing office or non-manual work. During an audit, the Department of Labor will be asking for your job descriptions and expecting to have those “matters of significance” spelled out. These employees should be creating and influencing policies, not merely following them.

3. The Professional Exemption

This exemption actually has two parts to it. The first is the Learned Professional. This requires knowledge in a field of learning or science that is acquired by prolonged instruction. Work is intellectual in nature and requires exercise of discretion and judgment.

An academic degree or credential is usually required as proof of this advanced learning; providing evidence that the employee satisfies “specialized intellectual instruction.” Examples of these types of jobs include: doctors, lawyers, teachers, engineers, scientists, architects, accountants, and theologians. The minimum weekly salary requirements do not apply to the doctors, lawyers, or teachers.

The second professional exemption is the creative professional. These people engage in work that requires invention, imagination, originality, or talent. Examples of these jobs include those in the field of music, writing, acting, and graphic arts.

4. The Highly Compensated Exemption

This is for an employee earning at least $100,000 per year, again with a minimum salary of at least $455 per week, and performs one of the duties of an exempt executive, administrative, or profession employee.

5. The Outside Sales Exemption

This is for your sales positions where the majority of time is off your company premises soliciting sales, customer orders, and contracts. This does exemption does not have a minimum salary requirement, so you have the option of having a 100% commissioned outside sales force if you want without endangering their exempt status.

6. The Computer Exemption

This is an exemption that is often applied too broadly. This does not apply to your entire IT organization. It is for those engaged in:

• the application system analysis techniques and procedures
• design, development, analysis, creation, testing or modification of systems or programs
• design documentation, testing, creation, or modification related to machine operating systems, or
• a combination of the above

This is for your software developers, testers, system analysts, programmers, and software engineers. It does not apply to your help desk staff who ask if you’ve checked to see if your laptop is plugged into a power source. It does not apply to your data entry staff or those working with your hardware manufacturing or repair.

While the minimum of $455 per week still applies, the minimum annual rate of pay must be no less than $57, 470. That is equal to $1,105.19 per week.

Cautions

These classifications must be undertaken on a job-by-job basis, always examining duties. Just looking at titles alone is not enough. Yesterday I was asked if someone supervisuing wasn’t “good enough” to be exempt. Exclusively in and of itself, it is not. A closer look at the total expectation of duties must be examined. What if the job in question had 5 percent duties as supervisor and 95 percent duties as welder? I would classify that position as non-exempt.

Be mindful that California has its own notions of what makes a position exempt or non-exempt, as defined in its 17 Work Orders issued by the Industrial Work Commission.

1. The minimum salary requirement in California is two times the minimum hourly rate of pay, or 2 x $8 = $16.

2. As another example of California differences, there is no defined percentage of exempt work performed to make a position exempt under the FLSA. In California, on the other hand, 51 percent of an exempt employee’s time needs to be engaged in performing exempt duties.

3. A third difference in California is the minimum salary for the computer exemption is $79,050 per year.


Regards,

Beverly N. Dance, MBA, SPHR-CA, CCP, CEBS

dance@mba.berkeley.edu

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