Exempt Employee

What is an Exempt Employee?

The ‘exempt’ in exempt employee signifies that the employee is exempt from the overtime protections in the Fair Labor Standards Act (FLSA). In other words, the employer doesn’t have to pay overtime, generally time and a half their regular rate for weekly hours above 40.

What qualifies for exemption from overtime laws?

The Department of Labor lists several categories of employees who are exempt from overtime laws. This is sometimes called the ‘white collar’ exemption.

To be exempt, employees must meet the duties test for all requirements. It’s the actual job duties that count, not the job title. Note that the salary threshold increase in 2020 did not affect the classification rules.

Executive

• Salaried making not less than $684 per week/$35,568 per year
• Primary duties: managing the enterprise, managing a department of at least two employees
• Hire and fire authority

Administrative

• Salaried making not less than $684 per week/$35,568 per year
• Primary duties: administrative work directly related to the management of the business
• Must be able to exercise of discretion and independent judgment

Learned Professional Exemption

• Salaried making not less than $684 per week/$35,568 per year
• Work predominantly intellectual in character requiring consistent exercise of judgment
• Possesses advanced knowledge acquired through prolonged specialized instruction

Creative Professional Exemption

• Salaried making not less than $684 per week/$35,568 per year
• Work requiring ‘invention, imagination, originality, or talent’

Computer Employee Exemption

• Salaried making not less than $684 per week/$35,568 per year
• Computer systems analyst, computer programmer, software engineer or similar

Outside Sales Exemption

• Duties: sales, obtaining contracts

Highly Compensated Exemption

• Salary greater than $107,432 or more, which includes at least $684 per week paid on a salary or fee basis;
• Regularly perform at least one of the duties of exempt executive, administrative, or professional

Are there any special rules for some industries?

Yes. The FLSA has special rules for:

• Agricultural
• Commissioned sales employees
• Motor carrier employees

What are common mistakes employers make regarding exempt employee classification?

The DOL has clarified that executive employees must manage at least two other employees and have their primary job duties be managerial.

Further, they must have as their job duties, decision-making abilities over other people’s jobs. This clarification over the executive level means that many shift managers at retail and fast food establishments are incorrectly classified as exempt under the executive function.

Another common misclassification is under the administrative job duties. The DOL defines administrative job duties as higher-level operational persons in their areas of responsibilities.

Specifically, administrative employees are not secretarial, clerks, data entry and bookkeepers. They must have non manual work directly related to the management or general business operations of the business. They must be able to exercise independent judgement of significant importance in matters relating to the business.

Areas of administrative duties include tax, public relations, purchasing, quality control, human resources, safety, computer networking, legal and regulatory compliance, budgeting, and internet and database administration. There are other areas not listed above.

Just as when evaluating executive employees, the duties performed, not the job description are the best guide for administrative employees. Tasks should not be repetitive, mechanical, and routine, but should include decision making, analysis, and establishing.

See also

• Employee Overtime
• Wage and Hour Compliance
• FLSA
• Wage and Hour Laws
• FTE (Full-Time Equivalent

Additional resources

• Understanding Overtime Exemptions Under the FLSA, SHRM
• Avoid FLSA Fines: Critical Checklist For Small Business Overtime Laws
• Do You Have To Pay Overtime To Seasonal Workers?
• CSI HR: The Case of Vanishing Overtime (Construction Wage and Hour Compliance)
• Avoid Less-Obvious Payroll Processing Pitfalls