Under the Fair Labor Standards Act (FLSA), “nonexempt” U.S. employees must be paid at least the federal minimum wage and one-and-one-half times their regular rate of pay for any hours they work over 40 in a workweek. Your business is not required to pay overtime to “exempt employees.”
To qualify for an overtime pay exemption, workers must meet the following FLSA criteria:
- They must be paid a salary of no less than $27.63 an hour or $455 per week – a figure the Department of Labor on March 7, 2019, proposed increasing to $679 per week.
- Their job duties must meet DOL requirements.
The DOL, which administers and enforces the FLSA, provides specific criteria that must be met before an employee may be classified as exempt and ineligible for overtime pay. FLSA “white-collar” exemptions cover workers employed as executive, administrative, outside sales, and professional employees, as well as certain computer employees. Be careful, though. Job titles alone do not determine whether an employee is exempt.
Exempt executives must meet all of the following job tests:
- They must earn at least $455 per week. Again, this pay rate requirement may increase to $679 per week, as the DOL has proposed, at some future date.
- Their primary responsibility must be in management, so they must manage the enterprise or one of its subsidiaries or departments.
- They must serve as supervisors who regularly direct the work of at least two full-time employees (or their equivalent).
- They must have the authority to hire and fire other employees or to influence decisions regarding the hiring, termination, advancement, promotion and other changes in status of other employees.
To qualify for exemption under the administrative clause of the FLSA, employees must earn a salary of at least $455 per week and perform all of the following primary duties:
- Office or “non-manual work” tied to the management or general business operations of their employers or their employers’ customers. This does not include secretarial and clerical work.
- “Discretion and independent judgment with respect to matters of significance” – meaning these employees must regularly analyze and compare multiple courses of action and recommend one based on their evaluation of the options. A matter is “significant” if it has a major impact on the business.
Outside Sales Exemption
Exempt outside sales employees must meet all of the following tests:
- Their primary duty must be selling products or services or generating orders or contracts for services for which a client or customer will pay; and
- They must regularly perform their jobs away from their employers’ places of business.
Computer Employee Exemption
To qualify for the computer employee exemption:
- Employees must be paid on a salary or fee basis at a rate of no less than $455 per week or $27.63 an hour; and
- Their job title must be a computer systems analyst, computer programmer, or software engineer, or they must be considered a similarly skilled worker in the field who:
- Applies systems analysis techniques and procedures and consults with users to establish hardware, software or system functionality specifications;
- Designs, develops, documents, analyzes, creates, tests or modifies computer systems or programs based on and related to user or system specifications;
- Designs, documents, tests, creates or modifies computer programs associated with machine operating systems; or
- Performs a combination of the duties described above that require the same level of skills.
“Professional” work requires the consistent exercise of discretion and judgment, distinguishing it from positions involving routine mental, manual, mechanical, or physical labor. A professional employee generally uses advanced knowledge attained through education beyond high school to analyze, interpret or make deductions based on varying facts or circumstances.
There are two types of exempt professional employees: learned professionals and creative professionals.
To qualify for the learned professional exemption, employees must meet all of the following tests:
- Their salary or earned fee must be at least $455 per week;
- Their primary duty must be performing work that requires “advanced knowledge,” which the FLSA defines as work that is mostly intellectual in character and includes work requiring discretion and judgment skills;
- Their advanced knowledge must be in fields of science or learning, including:
- Law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, sciences, and pharmacy;
- They must work in a profession that requires specialized academic training – for example, a specific academic degree or a combination of work experience and intellectual instruction.
Creative Professional Exemption
To qualify for the creative professional exemption, employees must meet every one of these tests:
- They must be compensated either on a salary or fee basis at a rate of at least $455 per week or $27.63 an hour;
- Their primary duty must be performing work that requires invention, imagination, originality or talent in recognized artistic or creative fields, including:
- Acting, music, musical composition, singing, painting, writing, illustration, and journalism if a journalist originates content or contributes a unique interpretation or analysis to a news product.
Another category of white-collar exemptions is known as highly compensated employees, which comprises workers who regularly perform office or “non-manual” work and earn $100,000 or more annually. They are exempt and ineligible for overtime pay under the FLSA if they regularly perform at least one of the duties of an exempt executive, administrative or professional employee.
For more information about how to classify employees who hold occupations or work in industries cited in FLSA regulations, visit the DOL’s Wage and Hour Division website.