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Under both the federal FLSA and other federal laws applicable to public works projects, employers must pay overtime to employees who work in excess of 40 hours per week. However, the law exempts certain kinds of jobs from overtime requirements if they meet specific criteria in the law and in U.S. Department of Labor (DOL) regulations. The FLSA exempts broad categories of “white-collar” jobs from minimum wage and overtime requirements if they meet certain tests regarding job duties and responsibilities and are paid a certain minimum salary. These categories of employees are commonly known as “exempt” employees and include executive, administrative, and professional employees. The FLSA also provides exemptions for outside sales personnel, certain specialized computer personnel, certain HCEs, certain retail sales employees, and employees covered by the Motor Carrier Act (MCA).
Practice tip: An employer should periodically review the duties of exempt employees to ensure that they still qualify for exempt status, especially if the company has undergone restructuring or downsizing.
Salary. Exempt white-collar employees must perform certain types of work, and they must generally be paid on a salary basis and receive a minimum salary. To be exempt, employees must generally be paid a predetermined amount each pay period. The amount paid may not be reduced because of a variation in the quality or quantity of the work performed. With limited exceptions, the employee must receive his or her full salary for any week in which he or she performs any work, without regard to the number of days or hours worked. However, the employee need not be paid for any workweek in which he or she performs no work.
A DOL opinion letter states that employers may not prorate salaries of part-time employees to determine whether they meet the minimum salary requirement for exemption. For example, a part-time employee earning $300 per week for working 20 hours does not qualify for exemption, because the employer may not prorate the $300 for 20 hours out to $600 for 40 hours when the employee works only 20 hours per week.
Attaching enhanced job titles to nonexempt jobs and paying a fixed salary will not transform a nonexempt position into an exempt one. For example, an employer does not escape the overtime requirements simply by calling an employee an engineer, though he or she has no college degree. Similarly, the mere fact that an employee is paid a salary does not place the employee into the exempt category. Many nonexempt employees are paid on a salary basis.
Administrative and professional employees may be paid on a fee basis rather than on a salary basis. To determine whether the fee payment meets the minimum salary threshold, the amount paid to the employee should be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to at least $455 per week if the employee worked 40 hours.
Examples. (1) A singer receives $50 for a song on a 15-minute program (no rehearsal time is involved). The requirement will be met, since the employee would earn the requisite amount in far less than 40 hours. (2) An artist is paid $100 for a picture. Upon completion of the assignment, it is determined that the artist worked 20 hours. Because earnings at this rate would yield the artist $200 if 40 hours were worked, the $455 minimum was not met.
Duties.FLSA Sec. 213(a)(1) exempts bona fide administrative, executive, and professional employees from minimum wage and overtime requirements. DOL Wage and Hour Division regulations require that an employee be paid on a salary basis and perform certain duties in order to be classified as exempt.
Practice tip. Employers should remember to look at the job duties, not the job title, of an employee to determine whether an exempt status applies. For example, an employee performing routine clerical duties is not performing work of substantial importance to the management or operation of the business, even though he or she may exercise some measure of discretion and judgment as to the manner in which tasks are performed. A messenger who is entrusted with carrying large sums of money or securities cannot be said to be doing work of importance to the business even though serious consequences may flow from his or her neglect.
FLSA Sec. 213(a)(1) exempts bona fide administrative employees from minimum wage and overtime requirements. If the salary level test and the standard duties test are satisfied, an employee is exempt.
Salary level test. The salary level required for employees to be exempt is $455 per week and must be paid on a salary or fee basis. The employee also must meet the standard duties test to qualify as exempt.
Standard duties test. The standard duties test for the administrative exemption is as follows:
1. The employee's primary duty is office or nonmanual work that is directly related to management or general business operations of the employer or of the employer's customers, orthe performance of administrative functions directly related to academic instruction or training in an educational establishment or of a department or subdivision of one.
2. The primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Regular exercise of discretion and independent judgment. The exercise of discretion and independent judgment generally involves evaluating and deciding on possible courses of conduct. The term implies that the person has the authority or power to make an independent choice, free from immediate direction or supervision on matters of significance.
The exercise of discretion and independent judgment does not mean that the decisions made by the employee must be final and never reviewed. They may consist of recommendations for action rather than actually taking action. For example, the assistant to the president of a large corporation may regularly reply to correspondence addressed to the president. Such an assistant will submit the more important replies to the president for review before they are sent out. Occasionally the president may alter or discard the prepared reply. This action does not mean that the assistant does not exercise discretion and independent judgment in answering correspondence and in deciding which replies may be sent out without review by the president. Factors to consider are:
• 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, even if the employee’s assignments are related to operation of a particular segment of the business;
• 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;
• Whether the employee has authority to negotiate and bind the company on significant matters;
• Whether the employee provides consultation or expert advice to management;
• Whether the employee is involved in planning long-term or short-term business objectives;
• Whether the employee investigates and resolves matters of significance on behalf of management; and
• Whether the employee represents the company in handling complaints, arbitrating disputes, or resolving grievances.
The exercise of discretion and independent judgment must be more than the use of skill in applying well-established procedures described in manuals. The use of manuals, guidelines, or other established procedures containing or relating to highly technical, scientific, legal, or financial matters that can be understood or interpreted only by those with advanced or specialized knowledge or skills does not preclude exemption. Such manuals and procedures provide guidance in addressing difficult or novel circumstances and, therefore, would not affect an employee’s exempt status. The exercise of discretion and independent judgment does not include clerical or secretarial work, recording or tabulating data, or performing other mechanical, repetitive, recurrent, or routine work.
Directly related to management or general business operations. Work directly related to management or general business operations of the employer or the employer's customers includes activities directly relating to assisting with the running or servicing of a business as distinguished from production or, in a retail or service establishment, sales work. Work considered to be directly related to management or general business operations includes work in functional areas such as finance, auditing, budgeting, purchasing, advertising, personnel management, quality control, legal and regulatory compliance, and health and safety. This requirement limits the administrative exemption to individuals whose work is of substantial importance to the management or operation of the business of the employer or the employer's customers.
There is no magic formula that will indicate the precise point that work becomes of substantial importance to the management or operation of a business. Bookkeepers, administrative assistants, and clerks of various kinds hold run-of-the-mill positions in any ordinary business and are not performing work directly related to management policies or general business operations.
Examples of exempt administrative employees. Examples of exempt administrative employees may include executive assistants to the president, confidential assistants, executive secretaries, assistants to the general manager, high-level administrative assistants, assistant managers or buyers in retail or service establishments, advisory or tax specialists, insurance experts, sales research experts, wage-rate analysts, registered securities and investment consultants, registered stockbrokers, foreign exchange consultants, employees who lead a team, human resources managers, management consultants, purchasing agents, and statisticians.
Insurance claims adjusters. Insurance claims adjusters are generally considered exempt, but the DOL has stated in an opinion letter that if the claims adjuster is so closely supervised by his or her manager that the adjuster does not have the authority to make independent choices that are free from immediate direction or supervision, he or she may not qualify for exemption. (There are specific exemption rules for employees working as insurance adjusters or evaluators for 2 years following a major disaster. Under the exemption for major disasters, the employee must have the license required to evaluate and adjust claims relating to a major disaster and must be employed by an employer that maintains worker compensation insurance coverage or protection for its employees, if required by law, and withholds applicable income and payroll taxes from the wages, salaries, and any benefits of the employees.)
Academic advisors and intervention specialists. DOL also has stated in an opinion letter that academic advisors and intervention specialists at the college level may be exempt because they are primarily performing administrative functions. These include the following examples of administrative functions according to DOL:
• Aiding students in their class selection, educational goals, and graduation requirements;
• Orienting students about admissions, placement testing, registration processes, policies, procedures, resources, and programs;
• Reviewing academic records, placement tests, and other standardized test results with students in order to develop course selections consistent with their career choices and degree requirements;
• Developing a term-by-term schedule and an outline of a program of study; and
• Reviewing degree audits and transcripts to verify the fulfillment of graduation requirements.
Location managers in motion picture industry. In addition, the DOL has stated in an opinion letter that location managers employed in the motion picture industry qualify for the administrative exemption.
Mortgage loan officers. The financial services industry assigns a variety of job titles to mortgage loan officers, including mortgage loan representatives, mortgage loan consultants, and mortgage loan originators. Employees who perform the typical job duties of a mortgage loan officer do not qualify as exempt administrative employees. Mortgage loan officers receive internal leads and contact potential customers or receive contacts from customers generated by direct mail or other marketing activity; collect required financial information from customers they contact or who contact them, including information about income, employment history, assets, investments, home ownership, debts, credit history, prior bankruptcies, judgments, and liens; run credit reports; enter the collected financial information into a computer program that identifies which loan products may be offered to customers based on the financial information provided; assess the loan products identified and discuss with the customers the terms and conditions of particular loans, trying to match the customers’ needs with one of the company’s loan products; reviews customer documents for forwarding to an underwriter or loan processor; and may finalize documents for closings.
FLSA Sec. 213(a)(1) exempts bona fide executive employees from minimum wage and overtime requirements. If the salary level test and the standard duties test are satisfied, an employee is exempt.
Salary level test. The salary level required for employees to be exempt is $455 per week and must be paid on a salary basis. The employee must also meet the standard duties test to qualify as exempt.
Standard duties test. The standard duties test for the executive exemption is as follows:
1. The employee's primary duty consists of the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision of the enterprise.
2. The employee customarily and regularly directs the work of two or more other employees.
3. The employee has the authority to hire or fire other employees or provide suggestions and recommendations that will be given particular weight in the hiring, firing, advancement, promotion, or any other change of status of other employees.
Authority to hire or fire. Executive employees do not have to have sole discretion in the hiring and firing process to be considered exempt. An exemption will exist as long as the employee is directly involved in the hiring and firing process or is able to make a change to the another employee's employment status.
Particular weight. In the regulations, the term “particular weight” is defined by a set of factors to consider, including:
• Whether it is part of the employee's job duties to make such suggestions and recommendations
• The frequency with which such suggestions and recommendations are made or requested
• The frequency with which the employee's suggestions and recommendations are relied on by others
Directing the work of two or more employees. Generally, this means customarily and regularly directing the work of two or more full-time employees who work a 40-hour week. This translates into 80 hours per week and has become a standard. Therefore, directing the work of four employees who each work 20 hours per week would also qualify under this standard. In addition, the employees being directed must be employed in the department in which the executive is managing. The federal DOL recently issued an opinion letter stating that an executive does not need to work at the same time or at the same location as the employees he or she manages as long as the executive is, in fact, customarily and regularly directing their work.
Actively engaged in management. The regulations also provide that owners of a 20 percent equity interest in a business enterprise must be “actively engaged in its management” to be exempt.
In some departments or subdivisions of an establishment, an employee has broad responsibilities similar to those of the owner or manager of the establishment but generally spends more than 50 percent of his or her time in production or sales work. If the employee directs the work of warehouse and delivery personnel, approves advertising, orders merchandise, handles customer complaints, authorizes payment of bills, or performs other management duties as the day-to-day operations require, he or she will be considered to have management as his or her primary duty.
What the regulations say. According to the regulations, the following types of work are managerial duties when performed by an employee while running his or her department or while supervising subordinate employees:
• Interviewing, selecting, and training employees
• Setting and adjusting rates of pay and hours of work of employees
• Directing other employees' work
• Maintaining other employees' production or sales records for use in supervision or control
• Appraising other employees' productivity and efficiency in order to recommend promotions or other changes in their status
• Handling other employees' complaints and grievances and disciplining them when necessary
• Planning the work; determining the techniques to be used; apportioning the work among the workers
• Determining the type of materials, supplies, machinery, 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 of the employees and the property
• Planning and controlling the budget
• Monitoring or implementing legal compliance measures
First responders. Police officers, firefighters, paramedics, and other so-called "first responders" such as detectives, deputy sheriffs, and state troopers are not generally considered exempt administrative employees and are entitled to overtime pay. But DOL has stated in an opinion letter that high-level police officers and firefighters may qualify as exempt executives if their primary duty is management, they direct the work of two or more other employees, and their suggestions and recommendations as to hiring and firing are given particular weight.
FLSA Sec. 213(a)(1) exempts bona fide professional employees from minimum wage and overtime requirements. If the salary level test and the standard duties test are satisfied, an employee is exempt.
Salary level test. The salary level required for employees to be exempt is $455 per week and must be paid on a salary or fee basis. The employee also must meet the standard duties test to qualify as exempt.
Standard duties test. The standard duties test for the professional exemption is as follows:
1. The employee's primary duty is work that requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction (also called the "learned professional" exemption) or is work as a teacher in the activity of imparting knowledge; or
2. The employee's primary duty is work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor (also called the "creative professional" exemption).
Warning: Employers should note that the definition of “work requiring knowledge of an advanced type” includes the requirement that the employee must exercise discretion and judgment.
Work requiring advanced knowledge. In the regulations, "work requiring advanced knowledge" is defined as work that is predominantly intellectual in character, including work requiring the consistent exercise of discretion and judgment. The exercise of discretion and independent judgment generally involves evaluating and deciding on possible courses of conduct. Work requiring advanced knowledge does not include routine mental, manual, mechanical, or physical work. An employee who performs work requiring advanced knowledge generally uses the advanced knowledge to analyze, interpret, or make deductions from varying facts or circumstances.
Note: An individual with advanced knowledge will not qualify as a learned professional if the job does not require a prolonged course of specialized intellectual instruction as a standard prerequisite for entrance into the occupation.
Employment in a learned profession requirement. Most professional employees meet the primary duty requirement by working in one of the so-called “learned” professions. The learned professions are those requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study as distinguished from a general academic education and from training in the performance of routine mental, manual, or physical processes. Knowledge of an advanced type generally cannot be attained at the high school level.
Knowledge in a field of science or learning is distinguished from the mechanical arts, which, in some instances, require knowledge of a fairly advanced type but not in a field of science or learning. While the requisite knowledge is almost always acquired by a prolonged course of specialized intellectual instruction, it may, in rare instances, be gained through home study and experience. The exemption is available to the occasional lawyer who has not gone to law school or the occasional chemist who is not the possessor of a degree in chemistry, etc. It is not automatically available to members of occupations such as journalism, in which the bulk of employees have acquired their skill by experience rather than by any formal specialized training.
The professions that meet the requirement for a prolonged course of specialized intellectual instruction and study include law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical, and biological sciences, including pharmacy and registered or certified medical technology, and so forth. The typical symbol of the professional training and the best evidence of its possession is the appropriate academic degree. Registered nurses traditionally have been recognized as professional employees, although, in some cases, the course of study has become shortened (but more concentrated).
Certified public accountants. Many accountants are exempt as professional employees. However, exemption of accountants, as in the case of other occupational groups, must be determined on the basis of the individual employee's duties and the other criteria in the regulations. Certified public accountants will almost always meet the requirements of the professional exemption. Accountants who are not certified public accountants also may be exempt as professional employees if they actually perform work that requires the consistent exercise of discretion and judgment and otherwise meet the tests prescribed in the definition of professional employee. Accounting clerks, junior accountants, and other accountants who perform a great deal of routine work that is not an essential part of and not necessarily incidental to any professional work that they may do are not exempt.
Physician assistants. Physician assistants who have successfully completed 4 academic years of preprofessional and professional study, including graduation from a physician assistant program accredited by the Accreditation Review Commission on Education for the Physician Assistant, and who have received certification from the National Commission on Certification of Physician Assistants will be exempt.
Registered or certified medical technologists. Registered or certified medical technologists who have successfully completed 3 academic years of preprofessional study in an accredited college or university, plus a fourth year of professional course work in a school of medical technology approved by the Council of Medical Education of the American Medical Association are exempt.
Nurses. Registered nurses who are registered by the appropriate state examining board are exempt. Licensed practical nurses and other similar healthcare employees are generally nonexempt because possession of a specialized advanced academic degree is not a standard prerequisite for entry into such occupations.
Chefs. Executive chefs and sous chefs who have received a 4-year specialized academic degree in a culinary arts program are generally exempt. Cooks who perform predominantly routine mental, manual, mechanical, or physical work are nonexempt.
Lawyers vs. paralegals. Lawyers who are the holders of a valid license or certificate permitting the practice of law and are actually engaged in the practice of law are exempt. Paralegals and legal assistants are generally nonexempt because an advanced specialized academic degree is not a standard prerequisite for entry into the field. However, a paralegal who possesses an advanced specialized degree in another professional field and applies advanced knowledge in that field to the performance of his or her primary duty may qualify for exemption. For example, if a law firm hires an engineer as a paralegal to provide expert advice on product liability cases or to assist on patent matters, that engineer could qualify for exemption.
In addition, DOL stated in another opinion letter that a senior legal analyst with only a 2-year legal studies degree did not qualify as an exempt learned professional because the required level of education for exemption was not met.
Dental hygienists. Dental hygienists who have successfully completed 4 academic years of preprofessional and professional study in an accredited college or university approved by the Commission on Accreditation of Dental and Dental Auxiliary Educational Programs of the American Dental Association may be exempt.
Athletic trainers. Athletic trainers who have successfully completed 4 academic years of preprofessional and professional study in a specialized curriculum accredited by the Commission on Accreditation of Allied Health Education Programs and who are certified by the Board of Certification of the National Athletic Trainers Association Board of Certification are exempt.
Funeral directors or embalmers. Funeral directors or embalmers who are working in, and licensed in, a state that requires successful completion of 4 academic years of preprofessional and professional study, including graduation from a college of mortuary science accredited by the American Board of Funeral Service Education, are considered exempt.
Social services employees. DOL has stated in an opinion letter that social workers with master’s degrees who work in the field of their degree may meet the requirements of the learned professional exemption if they are performing that work at a level that requires advanced knowledge in a field of science or learning and has the recognized professional status required by the FLSA regulations.
Teachers fall under the professional exemption, but the structure of the regulations separates the teaching exemption from the learned professional exemption. Unlike learned professionals, teachers are not required to have an advanced degree in a field of science or learning in order to be exempt. Teachers are exempt if their primary duty is teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge, and if they are employed and perform this duty in an educational establishment. There is no minimum salary requirement for the teacher exemption.
Substitute teachers. DOL has stated in an opinion letter that substitute teachers qualify for the professional exemption if their primary duty is teaching and imparting knowledge in an educational establishment. Substitute teachers whose primary duties are not related to teaching students (for example, performing general clerical or administrative tasks for the school unrelated to teaching their assigned students or performing manual labor) do not qualify for the professional exemption. Even a teacher who is not certified may be considered for exemption, provided that he or she is employed as a teacher by the employing school or school system and is primarily teaching and imparting knowledge.
Many professional employees meet the primary duty requirement by working in a so-called "creative" or “artistic” profession. Work of this type is original and creative in character in a recognized field of artistic endeavor (as opposed to work that can be produced by a person endowed with general manual or intellectual ability and training). The result of artistic work depends primarily on the invention, imagination, or talent of the employee. The recognized fields of artistic endeavor include music, writing, the theater, and the plastic and graphic arts.
The work must be original and creative in character as opposed to work that can be produced by a person endowed with general manual or intellectual ability and training. Musicians, composers, conductors, and soloists are engaged in original and creative work within the sense of this definition. In the plastic and graphic arts, the requirement is generally met by individuals who are, at most, given the subject matter of their painting or sculpture. It is similarly met by cartoonists who are told only the title or underlying concept of a cartoon and then rely on their own creative powers to express the concept.
Journalists and writers. Newspaper and other news media writers, except in certain highly technical fields, do not meet the requirements for an employee in a “learned” profession. Exemption for news media writers as professional employees is normally available only under the provisions for “artistic” professionals. Exempt news writing must, therefore, be “predominantly original and creative in character.” Only writing that is analytical, interpretative, or highly individualized is considered to be creative in nature. Fiction writing also would be considered exempt work. News media writers commonly performing work that is original and creative are editorial writers, columnists, critics, and writers of analytical and interpretative articles.
The reporting of news, the rewriting of stories received from various sources, or routine editorial work is not predominantly original and creative in character and is nonexempt work. Incidental interviewing or investigation, when it is performed as an essential part of and is necessarily incidental to an employee's professional work, however, need not be counted as nonexempt work. Thus, if a drama critic interviews an actor and writes a story on the interview, the work of interviewing and writing the story would not be considered nonexempt work.
Computer systems analysts, programmers, software engineers, and workers in similar computer-related jobs are exempt if they are paid on an hourly basis at a rate of at least $27.63 per hour or $455 per week and their primary duty consists of:
1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications; or
2. 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; or
3. The design, documentation, creation, testing, or modification of computer programs related to machine operating systems; or
4. A combination of duties described in 1, 2, and 3, the performance of which requires the same level of skill.
Warning: Employees who operate computers or who are engaged in the manufacture, repair, or maintenance of computer hardware do not qualify for exemption but remain eligible for overtime under FLSA. In addition, DOL stated in an opinion letter that an information technology support specialist whose primary duty consists of installing, configuring, testing, and troubleshooting computer applications, networks, and hardware does not qualify for the computer employee or the administrative exemption.
Outside sales personnel are exempt from both minimum wage and overtime requirements. There is no minimum salary requirement for the outside sales personnel exemption. An employee is classified as outside sales personnel if the job meets the following elements.
Standard duties test. The following standard duties test is the federal standard. To qualify for the outside sales personnel exemption, an employee must:
• Have a primary duty that consists of making sales or obtaining orders or contracts for services or the use of facilities for which a consideration will be paid by the client or customer
• Customarily and regularly work away from the employer's place or places of business
Sales. The FLSA defines “sale” or “sell” as any exchange, contract of sale, assignment to sell, shipment for sale, or other disposition (FLSA Sec. 3(k)).
Obtaining orders for the use of facilities. The FLSA regulations define this as:
• The selling of time on radio or television
• The solicitation of advertising for newspapers and other periodicals
• The solicitation of freight for railroads and other transportation agencies
Services. The inclusion of obtaining orders or contracts for services in the primary duties test extends the outside sales exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order.
Customarily and regularly. The term “customarily and regularly” is defined as:
• A frequency that is greater than occasional but may be less than constant
• Including work normally and recurrently performed every workweek
• Not including isolated or onetime tasks
Away from the employer's place of business. An outside sales employee is an employee who makes sales or solicitations, or related activities, at the customer’s place of business or, if selling door-to-door, at the customer’s home. Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not the owner or tenant of the property. Outside sales does not include sales made by mail, telephone, or the Internet unless such contact is used merely as an adjunct to in-person sales calls. Activities employees perform that are incidental to their outside sales or solicitations also qualify as exempt outside sales work, but only if the incidental activity is in support of their own sales and not just generally directed toward stimulating the sales of the company.
Promotional work. The following promotional work is considered to be exempt sales work:
• Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations
• Promotional activities directed toward consummation of the employee’s own sales
Promotional work that is not exempt includes:
• Promotional work that is incidental to sales made, or to be made, by someone else
• Promotional activities designed to stimulate sales that will be made by someone else
Drivers who sell. Drivers who deliver products and also sell those products may qualify as exempt outside sales employees only if the employee has a primary duty of making sales. If the employee has a primary duty of making sales, all work performed incidental to and in conjunction with the employee's own sales efforts, including loading, driving, or delivering products, is exempt work.
An administrative, executive, or professional employee with total annual compensation of at least $100,000 is exempt without passing the full duties test if the employee:
• Customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee
• Earns at least $455 per week paid on a salary or fee basis
• Has the primary duty of performing office or nonmanual work
The employee's annual compensation may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned. The employee's annual compensation may not include board, lodging, and other facilities; payments for medical insurance; payments for life insurance; contributions to retirement plans; or the cost of other fringe benefits.
If an employee's total annual compensation does not total at least the minimum amount by the last pay period of the 52-week period, the employer may, during the last pay period or within 1 month after the end of the 52-week period, make one final payment sufficient to achieve the required level.
If the employee does not work a full year, the employee may still qualify for the exemption if the employee's pro rata portion of salary earned meets the salary requirement.
The white-collar exemptions do not apply to manual laborers or other blue-collar workers who perform work involving repetitive operations with their hands, physical skill, and energy. FLSA-covered, nonmanagement employees in production, maintenance, construction, and similar occupations, such as carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, operating engineers, longshoremen, construction workers, and laborers, are entitled to minimum wage and overtime premium pay under the FLSA and are not exempt regardless of how highly paid they might be.
The exemptions do not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, firefighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers, and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling, or extinguishing fires of any type; rescuing fire, crime, or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work.
Employers may, on their own initiative or under a collective bargaining agreement, provide a higher wage, shorter workweek, or higher overtime premium than required by the FLSA. While collective bargaining agreements cannot waive or reduce FLSA protections, nothing in the FLSA relieves employers from their contractual obligations under such bargaining agreements.
An exempt administrative, executive, professional, computer, or outside sales employee must have as his or her primary duty work that meets the first requirement of the standard duties test for the particular exemption. A determination of whether an employee passes the primary duty test is based on all the facts in a particular case. The amount of time spent in the performance of the required duties is a key factor.
In the ordinary case, "primary duty" means over 50 percent of the employee's time. However, time alone is not the only test. An employee who does not spend over 50 percent of his or her time in managerial duties might still have management as his or her primary duty if other pertinent factors are present. These include:
• The relative importance of the executive duties as compared with other types of duties
• The amount of time spent performing exempt work
• His or her relative freedom from supervision
• The fact that his or her salary is greater than the wages paid to other employees for the kind of nonexempt work performed by the executive
The concurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption. The regulations allow concurrent duties because, generally, exempt executives make the decision regarding when to perform nonexempt duties and remain responsible for the success or failure of business operations under their management while performing the nonexempt work. In contrast, the nonexempt employee generally is directed by a supervisor to perform the exempt work or performs the exempt work for defined time periods. For example, an exempt store manager will sweep the floor when he or she desires or needs to do so. A nonexempt janitorial employee, on the other hand, will sweep the floor at the order of the manager.
Combining work that is exempt under one category (e.g., professional) with work that is exempt under another (e.g., executive) is permitted for forming a combination exemption, provided the requirements for each exemption are met.
Employees of a retail or service establishment are exempt from the overtime requirements of the FLSA if their regular rate of pay is more than 11/2 times the minimum wage and more than half of their compensation during a representative period of at least 1 month (but not more than 1 year) is commissions on goods or services. This exemption applies to inside and outside sales personnel. For an establishment to be eligible to utilize this exemption, at least 75 percent of its annual dollar volume of sales must not be for resale, and the business must be recognized as retail or service in the particular industry.
Under the MCA exemption to the FLSA, the overtime provisions of the FLSA do not apply to motor carriers, such as truck drivers and their helpers, operating in interstate or foreign commerce. The exemption is not limited to those who ship large amounts of property or ship property as their principal business. A U.S. appellate court has held that the exemption extends to field engineers who carry tools, parts, and equipment in their private cars on interstate trips to install, maintain, and repair computers (Friedrich v. CableData, 974 F.2d 409, CA-3 (1992)). However, such personnel are still covered by the equal pay, minimum wage, and recordkeeping requirements of the FLSA.
Thus, the MCA overtime exemption applies to employees who are:
• Employed by a motor carrier or motor private carrier;
• Drivers, driver’s helpers, loaders, or mechanics whose duties affect the safety of operation of motor vehicles in transportation on public highways in interstate or foreign commerce, or
• Not covered by the small vehicle exception.
Motor carrier or motor private carrier. Motor carriers are persons providing motor vehicle transportation for compensation. Motor private carriers are persons other than motor carriers transporting property by motor vehicle if the person is the owner, lessee, or bailee of the property being transported, and the property is being transported for sale, lease, rent, or bailment, or to further a commercial enterprise.
Employee’s duties. The employee’s duties must include the performance, either regularly or from time to time, of safety-affecting activities on a motor vehicle used in transportation on public highways in interstate or foreign commerce. Employees must perform their duties as a driver, driver’s helper, loader, or mechanic. Employees performing these duties meet the duties requirement of the exemption regardless of the proportion of “safety affecting activities” performed, except where the continuing duties have no substantial direct effect on “safety of operation,” or where such safety affecting activities are so trivial, casual, and insignificant as to be de minimis, so long as there is no change in the duties. Transportation involved in the employee’s duties must be in interstate commerce (across state or international lines) or connect with an intrastate terminal (rail, air, water, or land) to continue an interstate journey of goods that have not come to rest at a final destination. Safety-affecting employees who have not made an actual interstate trip may still meet the duties requirement of the exemption if the employer is shown to have an involvement in interstate commerce, and the employee could, in the regular course of employment, reasonably have been expected to make an interstate journey or could have worked on the motor vehicle in such a way as to be safety affecting.
The overtime provisions of the FLSA will apply to an employee of a motor carrier or motor private carrier in any work week that the employee performs duties on motor vehicles weighing 10,000 pounds (lb) or less and the employee’s work, in whole or in part, is that of a driver, driver's helper, loader, or mechanic affecting the safety of operation of motor vehicles weighing 10,000 lb or less in transportation on public highways in interstate or foreign commerce, except vehicles:
• Designed or used to transport more than 8 passengers, including the driver, for compensation; or
• Designed or used to transport more than 15 passengers, including the driver, and not used to transport passengers for compensation; or
• Used in transporting hazardous material, requiring placarding under regulations prescribed by the Secretary of Transportation.
Whether a deduction is permissible or impermissible will depend on the facts in the particular case. The general rule is to stick to company policy and heed the list of permissible and nonpermissible deductions below. Remember, the FLSA does not regulate vacation, severance, sick (but see below), and holiday pay or rest and meal times. Most of these are a matter of company policy and should be enforced in a nondiscriminatory manner. As a general rule, employers should err on the side of caution when it comes to deducting exempt personnel. If an exempt employee abuses the company's policy on work time, employers cannot dock their pay. Instead, point out the policy and discipline the employee accordingly.
State law. In addition, be aware that many state laws do regulate areas that the FLSA does not. In these cases, the state law would control.
Personal reasons. Deductions may be made when the employee is absent from work for a full day or more for personal reasons other than sickness or disability. Thus, if an employee is absent for a day or longer to handle personal affairs, his or her salaried status will not be affected if deductions are made from his or her salary for such absences. If an employee is absent for less than a day, he or she must be paid for the full day.
It is important to note that employers may deduct from an employee's allotted personal time under the company's leave plan in increments of less than a day. The employer simply may not deduct an employee's pay for less than a day's absence.
Sickness/disability. Deductions also may be made for absences of a full day or more occasioned by sickness or disability (including industrial accidents) if the deduction is made under a bona fide plan, policy, or practice of providing compensation for loss of salary caused by both sickness and disability. Similarly, if the employer operates under a state or private sickness and disability insurance law, deductions may be made for a day or longer if benefits are provided under the particular law or plan. In the case of work-related accidents, the “salary basis” requirement will be met if the employee is compensated for loss of salary in accordance with the applicable workers' compensation law or the plan adopted by the employer, provided the employer also has some plan, policy, or practice of providing compensation for sickness and disability for non-work-related accidents.
Sickness and disability deductions are an area of confusion for some employers. It is important to distinguish between deducting from an exempt employee's paycheck and deducting from an employee's allotted sick time. The employer may not deduct from an employee's pay for less than a day's absence for sickness or disability. But, if an employer, for example, provides an employee with 2 weeks of paid sick time by company policy and the employee has used up all of his or her sick time, an employer may deduct from the employee's paycheck in full-day increments if the employee is out for a day or more. If the employee works for any part of a day, though, and is out sick the remainder of the day, the employer may not deduct from the employee's paycheck.
On the other hand, employers may deduct from an employee's allotted sick time under the company's leave plan in increments of less than a day as long as the employee has not used up his or her paid sick time.
When the sickness/disability deduction applies. An employer may make a deduction from an exempt employee's salary for the employee's full-day absences due to sickness provided the deduction is made in accordance with a bona fide plan, policy, or practice of providing wage replacement benefits for such absences. Deductions may also be made for the exempt employee's full-day absences due to sickness before the employee has qualified for the plan, policy, or practice or after the employee has exhausted the leave allowance under the plan. For example, an employer's sick leave plan provides each employee with 10 paid sick days per year. An employee must work for the employer for 90 days before becoming eligible for the sick leave benefit. In this example, a deduction of 1 or more full days may be made from the salary of an exempt employee who is absent due to sickness:
• Before the employee becomes eligible to participate in the sick leave plan (i.e., in the initial 90 days of employment);
• After the employee has exhausted the 10-day leave entitlement under the sick leave plan; and
• When the employee receives compensation according to the employer's sick leave plan. In this case, the employee would most likely not see a reduction in pay, but rather, the employee's sick leave benefit would be reduced by the number of days he or she was absent due to sickness and for which compensation from the plan was received.
Family and Medical Leave Act (FMLA) leave. Employers may dock the pay of otherwise salaried and exempt employees for family and medical leave-related absences of less than 1 full day without affecting their exempt status but only in situations where the employer is required to provide leave under the FMLA. Please see the national Leave of Absence section.
Safety penalties. Suspensions imposed in good faith for infractions of significant safety rules will not affect the employee's salaried status. Significant safety rules include only those relating to the prevention of serious danger to the plant or other employees, such as rules prohibiting smoking in explosives plants, oil refineries, and coal mines.
First and last week of employment. An exempt employee's salary may be docked during the first and last week of employment if the employee works less than a full workweek. Payment of a proportional amount of the employee's salary for the time actually worked meets the salary pay requirement for those weeks.
Disciplinary suspensions. Deductions from the pay of exempt employees may be made for unpaid disciplinary suspensions of 1 or more full days imposed in good faith for infractions of workplace conduct rules. The employer must have a written policy applicable to all employees in order to do this. For example, an employer may suspend an exempt employee without pay for 3 days for violating a generally applicable written policy prohibiting sexual harassment or workplace violence.
No work available. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available.
Caused by employer or operations of business. No deductions may be made from the employee's compensation for time lost caused by the employer or by the operating requirements of the business.
Jury duty/witness appearance/military leave. Deductions may not be made for absences for jury duty, attendance as a witness, or temporary military leave. The employer may, however, offset any fees the employee receives as a juror or witness or military pay for a particular week against the salary due for that particular week without loss of the exemption.
Less than a full day. Exempt employees should never be docked for less than a full day because to do so would require calculating an hourly wage.
Fines. Deductions from the pay of exempt employees to cover the cost of damaged or lost equipment are impermissible. DOL has stated in an opinion letter that employers may not fine exempt employees who lose or damage equipment as a way around the ban on pay deductions for such costs. Even out-of-pocket reimbursements would prevent employees from receiving their predetermined salaries free and clear and would, therefore, violate the salary basis requirement.
An employer that makes improper deductions from salary will lose the exemption if the facts demonstrate that the employer did not intend to pay the employees on a salary basis. According to the FLSA’s regulations, an actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis. The factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to:
• The time period during which the employer made improper deductions
• The number and geographic location of employees whose salaries were improperly reduced
• The number and geographic location of managers responsible for taking the improper deductions
• Whether the employer has a clearly communicated policy permitting or prohibiting improper deductions
• The number of improper deductions, particularly as compared to the number of employee infractions warranting discipline
If an employer has an actual practice of making improper deductions from the pay of exempt employees, the employer will lose the exemption for the entire class of employees in that job classification who work for that manager. The FLSA regulations emphasize, though, that improper deductions that are either isolated or inadvertent will not result in loss of the exemption, as long as the employer reimburses the employees for improperly deducting from their pay.
Safe harbor rule. The safe harbor rule indicates that an employer may prevent the loss of the exemption by:
• Having a clearly communicated policy, which includes a complaint mechanism, that prohibits improper pay deductions
• Reimbursing employees for any improper deductions that have occurred
• Making a good-faith commitment to comply with the regulations in the future
But, if the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints, the exemption will be lost during the time period in which the improper deductions were made. The FLSA regulations outline the best evidence of a clearly communicated policy:
• A written policy
• Distributed to employees prior to the improper pay deductions by providing a copy of the policy to employees at the time of hire; publishing the policy in an employee handbook; publishing the policy on the employer’s intranet
An employer may provide an exempt employee with additional compensation, such as overtime, without losing the exempt status or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis. For example, the exemption is not lost if an exempt employee who is guaranteed at least $455 each week paid on a salary basis also receives overtime compensation based on hours worked for work beyond the normal workweek. And an exempt employee guaranteed at least $455 each week paid on a salary basis may receive additional compensation of a 1 percent commission on sales. An exempt employee may also receive a percentage of the sales or profits of the employer if the employment arrangement includes, as well, a guarantee of at least $455 each week paid on a salary basis.
Such additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half, or any other basis), and may include paid time off.
Most employers do not require exempt workers to keep track of hours. This is fine as long as the employer is absolutely sure the workers are exempt. If it is later determined that an employee was nonexempt, that employee might make a claim for overtime pay. If there are no records of the employee's work hours, the employer will have great difficulty countering the employee's claim as to the number of hours he or she worked. Time sheets for exempt employees should record sick days, floating holidays, vacation time, jury duty, bereavement, and other absences. However, exempt employees may not be docked pay because of a variation in the quantity of work performed and recorded.
Employers may require exempt employees to work specific hours, for example from 8 a.m. to 6 p.m. If an employee violates this type of policy, the employer may not dock the employee's pay but may use other forms of discipline.
DOL recently released several opinion letters addressing how furloughs affect exempt employees. The following are the main principles:
Weeklong furlough. If an employer sets up a weeklong furlough and doesn’t pay exempt employees, there is no risk of losing the employees’ exempt status because the FLSA regulations provide that exempt employees need not be paid for any workweek in which they perform no work.
Partial-week furlough deducting employee pay. If an employee sets up a partial-week furlough and deducts the pay of exempt employees for the furlough days, the employees are at risk of losing their exempt status and may be entitled to overtime.
Partial-week furlough using vacation time. If an employer sets up a partial-week furlough and uses vacation time for the furlough time so that the employees receive their usual salary, there is no risk of losing the exemption. But this requires that every employee on furlough has enough vacation time to cover the furlough.
Permanent furlough arrangement. Employers may set up a permanent change in an employee's usual weekly schedule, such as changing the weekly work schedule from 5 days to 4 days, and altering the employee's salary to match. As long as the exempt employees’ receive at least the $455 weekly salary required by the FLSA for exemption, they will remain exempt.
Last updated on June 8, 2017..
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Under both the federal FLSA and other federal laws applicable to public works projects, employers must pay overtime to employees who work in excess of 40 hours per week. However, the law exempts certain kinds of jobs from overtime requirements if they meet specific criteria in the law and in U.S. Department of Labor (DOL) regulations. The FLSA exempts broad categories of “white-collar” jobs from minimum wage and overtime requirements if they meet certain tests regarding job duties and responsibilities and are paid a certain minimum salary. These categories of employees are commonly known as “exempt” employees and include executive, administrative, and professional employees. The FLSA also provides exemptions for outside sales personnel, certain specialized computer personnel, certain HCEs, certain retail sales employees, and employees covered by the Motor Carrier Act (MCA).
Practice tip: An employer should periodically review the duties of exempt employees to ensure that they still qualify for exempt status, especially if the company has undergone restructuring or downsizing.
Salary. Exempt white-collar employees must perform certain types of work, and they must generally be paid on a salary basis and receive a minimum salary. To be exempt, employees must generally be paid a predetermined amount each pay period. The amount paid may not be reduced because of a variation in the quality or quantity of the work performed. With limited exceptions, the employee must receive his or her full salary for any week in which he or she performs any work, without regard to the number of days or hours worked. However, the employee need not be paid for any workweek in which he or she performs no work.
A DOL opinion letter states that employers may not prorate salaries of part-time employees to determine whether they meet the minimum salary requirement for exemption. For example, a part-time employee earning $300 per week for working 20 hours does not qualify for exemption, because the employer may not prorate the $300 for 20 hours out to $600 for 40 hours when the employee works only 20 hours per week.
Attaching enhanced job titles to nonexempt jobs and paying a fixed salary will not transform a nonexempt position into an exempt one. For example, an employer does not escape the overtime requirements simply by calling an employee an engineer, though he or she has no college degree. Similarly, the mere fact that an employee is paid a salary does not place the employee into the exempt category. Many nonexempt employees are paid on a salary basis.
Administrative and professional employees may be paid on a fee basis rather than on a salary basis. To determine whether the fee payment meets the minimum salary threshold, the amount paid to the employee should be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to at least $455 per week if the employee worked 40 hours.
Examples. (1) A singer receives $50 for a song on a 15-minute program (no rehearsal time is involved). The requirement will be met, since the employee would earn the requisite amount in far less than 40 hours. (2) An artist is paid $100 for a picture. Upon completion of the assignment, it is determined that the artist worked 20 hours. Because earnings at this rate would yield the artist $200 if 40 hours were worked, the $455 minimum was not met.
Duties.FLSA Sec. 213(a)(1) exempts bona fide administrative, executive, and professional employees from minimum wage and overtime requirements. DOL Wage and Hour Division regulations require that an employee be paid on a salary basis and perform certain duties in order to be classified as exempt.
Practice tip. Employers should remember to look at the job duties, not the job title, of an employee to determine whether an exempt status applies. For example, an employee performing routine clerical duties is not performing work of substantial importance to the management or operation of the business, even though he or she may exercise some measure of discretion and judgment as to the manner in which tasks are performed. A messenger who is entrusted with carrying large sums of money or securities cannot be said to be doing work of importance to the business even though serious consequences may flow from his or her neglect.
FLSA Sec. 213(a)(1) exempts bona fide administrative employees from minimum wage and overtime requirements. If the salary level test and the standard duties test are satisfied, an employee is exempt.
Salary level test. The salary level required for employees to be exempt is $455 per week and must be paid on a salary or fee basis. The employee also must meet the standard duties test to qualify as exempt.
Standard duties test. The standard duties test for the administrative exemption is as follows:
1. The employee's primary duty is office or nonmanual work that is directly related to management or general business operations of the employer or of the employer's customers, orthe performance of administrative functions directly related to academic instruction or training in an educational establishment or of a department or subdivision of one.
2. The primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Regular exercise of discretion and independent judgment. The exercise of discretion and independent judgment generally involves evaluating and deciding on possible courses of conduct. The term implies that the person has the authority or power to make an independent choice, free from immediate direction or supervision on matters of significance.
The exercise of discretion and independent judgment does not mean that the decisions made by the employee must be final and never reviewed. They may consist of recommendations for action rather than actually taking action. For example, the assistant to the president of a large corporation may regularly reply to correspondence addressed to the president. Such an assistant will submit the more important replies to the president for review before they are sent out. Occasionally the president may alter or discard the prepared reply. This action does not mean that the assistant does not exercise discretion and independent judgment in answering correspondence and in deciding which replies may be sent out without review by the president. Factors to consider are:
• 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, even if the employee’s assignments are related to operation of a particular segment of the business;
• 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;
• Whether the employee has authority to negotiate and bind the company on significant matters;
• Whether the employee provides consultation or expert advice to management;
• Whether the employee is involved in planning long-term or short-term business objectives;
• Whether the employee investigates and resolves matters of significance on behalf of management; and
• Whether the employee represents the company in handling complaints, arbitrating disputes, or resolving grievances.
The exercise of discretion and independent judgment must be more than the use of skill in applying well-established procedures described in manuals. The use of manuals, guidelines, or other established procedures containing or relating to highly technical, scientific, legal, or financial matters that can be understood or interpreted only by those with advanced or specialized knowledge or skills does not preclude exemption. Such manuals and procedures provide guidance in addressing difficult or novel circumstances and, therefore, would not affect an employee’s exempt status. The exercise of discretion and independent judgment does not include clerical or secretarial work, recording or tabulating data, or performing other mechanical, repetitive, recurrent, or routine work.
Directly related to management or general business operations. Work directly related to management or general business operations of the employer or the employer's customers includes activities directly relating to assisting with the running or servicing of a business as distinguished from production or, in a retail or service establishment, sales work. Work considered to be directly related to management or general business operations includes work in functional areas such as finance, auditing, budgeting, purchasing, advertising, personnel management, quality control, legal and regulatory compliance, and health and safety. This requirement limits the administrative exemption to individuals whose work is of substantial importance to the management or operation of the business of the employer or the employer's customers.
There is no magic formula that will indicate the precise point that work becomes of substantial importance to the management or operation of a business. Bookkeepers, administrative assistants, and clerks of various kinds hold run-of-the-mill positions in any ordinary business and are not performing work directly related to management policies or general business operations.
Examples of exempt administrative employees. Examples of exempt administrative employees may include executive assistants to the president, confidential assistants, executive secretaries, assistants to the general manager, high-level administrative assistants, assistant managers or buyers in retail or service establishments, advisory or tax specialists, insurance experts, sales research experts, wage-rate analysts, registered securities and investment consultants, registered stockbrokers, foreign exchange consultants, employees who lead a team, human resources managers, management consultants, purchasing agents, and statisticians.
Insurance claims adjusters. Insurance claims adjusters are generally considered exempt, but the DOL has stated in an opinion letter that if the claims adjuster is so closely supervised by his or her manager that the adjuster does not have the authority to make independent choices that are free from immediate direction or supervision, he or she may not qualify for exemption. (There are specific exemption rules for employees working as insurance adjusters or evaluators for 2 years following a major disaster. Under the exemption for major disasters, the employee must have the license required to evaluate and adjust claims relating to a major disaster and must be employed by an employer that maintains worker compensation insurance coverage or protection for its employees, if required by law, and withholds applicable income and payroll taxes from the wages, salaries, and any benefits of the employees.)
Academic advisors and intervention specialists. DOL also has stated in an opinion letter that academic advisors and intervention specialists at the college level may be exempt because they are primarily performing administrative functions. These include the following examples of administrative functions according to DOL:
• Aiding students in their class selection, educational goals, and graduation requirements;
• Orienting students about admissions, placement testing, registration processes, policies, procedures, resources, and programs;
• Reviewing academic records, placement tests, and other standardized test results with students in order to develop course selections consistent with their career choices and degree requirements;
• Developing a term-by-term schedule and an outline of a program of study; and
• Reviewing degree audits and transcripts to verify the fulfillment of graduation requirements.
Location managers in motion picture industry. In addition, the DOL has stated in an opinion letter that location managers employed in the motion picture industry qualify for the administrative exemption.
Mortgage loan officers. The financial services industry assigns a variety of job titles to mortgage loan officers, including mortgage loan representatives, mortgage loan consultants, and mortgage loan originators. Employees who perform the typical job duties of a mortgage loan officer do not qualify as exempt administrative employees. Mortgage loan officers receive internal leads and contact potential customers or receive contacts from customers generated by direct mail or other marketing activity; collect required financial information from customers they contact or who contact them, including information about income, employment history, assets, investments, home ownership, debts, credit history, prior bankruptcies, judgments, and liens; run credit reports; enter the collected financial information into a computer program that identifies which loan products may be offered to customers based on the financial information provided; assess the loan products identified and discuss with the customers the terms and conditions of particular loans, trying to match the customers’ needs with one of the company’s loan products; reviews customer documents for forwarding to an underwriter or loan processor; and may finalize documents for closings.
FLSA Sec. 213(a)(1) exempts bona fide executive employees from minimum wage and overtime requirements. If the salary level test and the standard duties test are satisfied, an employee is exempt.
Salary level test. The salary level required for employees to be exempt is $455 per week and must be paid on a salary basis. The employee must also meet the standard duties test to qualify as exempt.
Standard duties test. The standard duties test for the executive exemption is as follows:
1. The employee's primary duty consists of the management of the enterprise in which he or she is employed or of a customarily recognized department or subdivision of the enterprise.
2. The employee customarily and regularly directs the work of two or more other employees.
3. The employee has the authority to hire or fire other employees or provide suggestions and recommendations that will be given particular weight in the hiring, firing, advancement, promotion, or any other change of status of other employees.
Authority to hire or fire. Executive employees do not have to have sole discretion in the hiring and firing process to be considered exempt. An exemption will exist as long as the employee is directly involved in the hiring and firing process or is able to make a change to the another employee's employment status.
Particular weight. In the regulations, the term “particular weight” is defined by a set of factors to consider, including:
• Whether it is part of the employee's job duties to make such suggestions and recommendations
• The frequency with which such suggestions and recommendations are made or requested
• The frequency with which the employee's suggestions and recommendations are relied on by others
Directing the work of two or more employees. Generally, this means customarily and regularly directing the work of two or more full-time employees who work a 40-hour week. This translates into 80 hours per week and has become a standard. Therefore, directing the work of four employees who each work 20 hours per week would also qualify under this standard. In addition, the employees being directed must be employed in the department in which the executive is managing. The federal DOL recently issued an opinion letter stating that an executive does not need to work at the same time or at the same location as the employees he or she manages as long as the executive is, in fact, customarily and regularly directing their work.
Actively engaged in management. The regulations also provide that owners of a 20 percent equity interest in a business enterprise must be “actively engaged in its management” to be exempt.
In some departments or subdivisions of an establishment, an employee has broad responsibilities similar to those of the owner or manager of the establishment but generally spends more than 50 percent of his or her time in production or sales work. If the employee directs the work of warehouse and delivery personnel, approves advertising, orders merchandise, handles customer complaints, authorizes payment of bills, or performs other management duties as the day-to-day operations require, he or she will be considered to have management as his or her primary duty.
What the regulations say. According to the regulations, the following types of work are managerial duties when performed by an employee while running his or her department or while supervising subordinate employees:
• Interviewing, selecting, and training employees
• Setting and adjusting rates of pay and hours of work of employees
• Directing other employees' work
• Maintaining other employees' production or sales records for use in supervision or control
• Appraising other employees' productivity and efficiency in order to recommend promotions or other changes in their status
• Handling other employees' complaints and grievances and disciplining them when necessary
• Planning the work; determining the techniques to be used; apportioning the work among the workers
• Determining the type of materials, supplies, machinery, 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 of the employees and the property
• Planning and controlling the budget
• Monitoring or implementing legal compliance measures
First responders. Police officers, firefighters, paramedics, and other so-called "first responders" such as detectives, deputy sheriffs, and state troopers are not generally considered exempt administrative employees and are entitled to overtime pay. But DOL has stated in an opinion letter that high-level police officers and firefighters may qualify as exempt executives if their primary duty is management, they direct the work of two or more other employees, and their suggestions and recommendations as to hiring and firing are given particular weight.
FLSA Sec. 213(a)(1) exempts bona fide professional employees from minimum wage and overtime requirements. If the salary level test and the standard duties test are satisfied, an employee is exempt.
Salary level test. The salary level required for employees to be exempt is $455 per week and must be paid on a salary or fee basis. The employee also must meet the standard duties test to qualify as exempt.
Standard duties test. The standard duties test for the professional exemption is as follows:
1. The employee's primary duty is work that requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction (also called the "learned professional" exemption) or is work as a teacher in the activity of imparting knowledge; or
2. The employee's primary duty is work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor (also called the "creative professional" exemption).
Warning: Employers should note that the definition of “work requiring knowledge of an advanced type” includes the requirement that the employee must exercise discretion and judgment.
Work requiring advanced knowledge. In the regulations, "work requiring advanced knowledge" is defined as work that is predominantly intellectual in character, including work requiring the consistent exercise of discretion and judgment. The exercise of discretion and independent judgment generally involves evaluating and deciding on possible courses of conduct. Work requiring advanced knowledge does not include routine mental, manual, mechanical, or physical work. An employee who performs work requiring advanced knowledge generally uses the advanced knowledge to analyze, interpret, or make deductions from varying facts or circumstances.
Note: An individual with advanced knowledge will not qualify as a learned professional if the job does not require a prolonged course of specialized intellectual instruction as a standard prerequisite for entrance into the occupation.
Employment in a learned profession requirement. Most professional employees meet the primary duty requirement by working in one of the so-called “learned” professions. The learned professions are those requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study as distinguished from a general academic education and from training in the performance of routine mental, manual, or physical processes. Knowledge of an advanced type generally cannot be attained at the high school level.
Knowledge in a field of science or learning is distinguished from the mechanical arts, which, in some instances, require knowledge of a fairly advanced type but not in a field of science or learning. While the requisite knowledge is almost always acquired by a prolonged course of specialized intellectual instruction, it may, in rare instances, be gained through home study and experience. The exemption is available to the occasional lawyer who has not gone to law school or the occasional chemist who is not the possessor of a degree in chemistry, etc. It is not automatically available to members of occupations such as journalism, in which the bulk of employees have acquired their skill by experience rather than by any formal specialized training.
The professions that meet the requirement for a prolonged course of specialized intellectual instruction and study include law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical, and biological sciences, including pharmacy and registered or certified medical technology, and so forth. The typical symbol of the professional training and the best evidence of its possession is the appropriate academic degree. Registered nurses traditionally have been recognized as professional employees, although, in some cases, the course of study has become shortened (but more concentrated).
Certified public accountants. Many accountants are exempt as professional employees. However, exemption of accountants, as in the case of other occupational groups, must be determined on the basis of the individual employee's duties and the other criteria in the regulations. Certified public accountants will almost always meet the requirements of the professional exemption. Accountants who are not certified public accountants also may be exempt as professional employees if they actually perform work that requires the consistent exercise of discretion and judgment and otherwise meet the tests prescribed in the definition of professional employee. Accounting clerks, junior accountants, and other accountants who perform a great deal of routine work that is not an essential part of and not necessarily incidental to any professional work that they may do are not exempt.
Physician assistants. Physician assistants who have successfully completed 4 academic years of preprofessional and professional study, including graduation from a physician assistant program accredited by the Accreditation Review Commission on Education for the Physician Assistant, and who have received certification from the National Commission on Certification of Physician Assistants will be exempt.
Registered or certified medical technologists. Registered or certified medical technologists who have successfully completed 3 academic years of preprofessional study in an accredited college or university, plus a fourth year of professional course work in a school of medical technology approved by the Council of Medical Education of the American Medical Association are exempt.
Nurses. Registered nurses who are registered by the appropriate state examining board are exempt. Licensed practical nurses and other similar healthcare employees are generally nonexempt because possession of a specialized advanced academic degree is not a standard prerequisite for entry into such occupations.
Chefs. Executive chefs and sous chefs who have received a 4-year specialized academic degree in a culinary arts program are generally exempt. Cooks who perform predominantly routine mental, manual, mechanical, or physical work are nonexempt.
Lawyers vs. paralegals. Lawyers who are the holders of a valid license or certificate permitting the practice of law and are actually engaged in the practice of law are exempt. Paralegals and legal assistants are generally nonexempt because an advanced specialized academic degree is not a standard prerequisite for entry into the field. However, a paralegal who possesses an advanced specialized degree in another professional field and applies advanced knowledge in that field to the performance of his or her primary duty may qualify for exemption. For example, if a law firm hires an engineer as a paralegal to provide expert advice on product liability cases or to assist on patent matters, that engineer could qualify for exemption.
In addition, DOL stated in another opinion letter that a senior legal analyst with only a 2-year legal studies degree did not qualify as an exempt learned professional because the required level of education for exemption was not met.
Dental hygienists. Dental hygienists who have successfully completed 4 academic years of preprofessional and professional study in an accredited college or university approved by the Commission on Accreditation of Dental and Dental Auxiliary Educational Programs of the American Dental Association may be exempt.
Athletic trainers. Athletic trainers who have successfully completed 4 academic years of preprofessional and professional study in a specialized curriculum accredited by the Commission on Accreditation of Allied Health Education Programs and who are certified by the Board of Certification of the National Athletic Trainers Association Board of Certification are exempt.
Funeral directors or embalmers. Funeral directors or embalmers who are working in, and licensed in, a state that requires successful completion of 4 academic years of preprofessional and professional study, including graduation from a college of mortuary science accredited by the American Board of Funeral Service Education, are considered exempt.
Social services employees. DOL has stated in an opinion letter that social workers with master’s degrees who work in the field of their degree may meet the requirements of the learned professional exemption if they are performing that work at a level that requires advanced knowledge in a field of science or learning and has the recognized professional status required by the FLSA regulations.
Teachers fall under the professional exemption, but the structure of the regulations separates the teaching exemption from the learned professional exemption. Unlike learned professionals, teachers are not required to have an advanced degree in a field of science or learning in order to be exempt. Teachers are exempt if their primary duty is teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge, and if they are employed and perform this duty in an educational establishment. There is no minimum salary requirement for the teacher exemption.
Substitute teachers. DOL has stated in an opinion letter that substitute teachers qualify for the professional exemption if their primary duty is teaching and imparting knowledge in an educational establishment. Substitute teachers whose primary duties are not related to teaching students (for example, performing general clerical or administrative tasks for the school unrelated to teaching their assigned students or performing manual labor) do not qualify for the professional exemption. Even a teacher who is not certified may be considered for exemption, provided that he or she is employed as a teacher by the employing school or school system and is primarily teaching and imparting knowledge.
Many professional employees meet the primary duty requirement by working in a so-called "creative" or “artistic” profession. Work of this type is original and creative in character in a recognized field of artistic endeavor (as opposed to work that can be produced by a person endowed with general manual or intellectual ability and training). The result of artistic work depends primarily on the invention, imagination, or talent of the employee. The recognized fields of artistic endeavor include music, writing, the theater, and the plastic and graphic arts.
The work must be original and creative in character as opposed to work that can be produced by a person endowed with general manual or intellectual ability and training. Musicians, composers, conductors, and soloists are engaged in original and creative work within the sense of this definition. In the plastic and graphic arts, the requirement is generally met by individuals who are, at most, given the subject matter of their painting or sculpture. It is similarly met by cartoonists who are told only the title or underlying concept of a cartoon and then rely on their own creative powers to express the concept.
Journalists and writers. Newspaper and other news media writers, except in certain highly technical fields, do not meet the requirements for an employee in a “learned” profession. Exemption for news media writers as professional employees is normally available only under the provisions for “artistic” professionals. Exempt news writing must, therefore, be “predominantly original and creative in character.” Only writing that is analytical, interpretative, or highly individualized is considered to be creative in nature. Fiction writing also would be considered exempt work. News media writers commonly performing work that is original and creative are editorial writers, columnists, critics, and writers of analytical and interpretative articles.
The reporting of news, the rewriting of stories received from various sources, or routine editorial work is not predominantly original and creative in character and is nonexempt work. Incidental interviewing or investigation, when it is performed as an essential part of and is necessarily incidental to an employee's professional work, however, need not be counted as nonexempt work. Thus, if a drama critic interviews an actor and writes a story on the interview, the work of interviewing and writing the story would not be considered nonexempt work.
Computer systems analysts, programmers, software engineers, and workers in similar computer-related jobs are exempt if they are paid on an hourly basis at a rate of at least $27.63 per hour or $455 per week and their primary duty consists of:
1. The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications; or
2. 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; or
3. The design, documentation, creation, testing, or modification of computer programs related to machine operating systems; or
4. A combination of duties described in 1, 2, and 3, the performance of which requires the same level of skill.
Warning: Employees who operate computers or who are engaged in the manufacture, repair, or maintenance of computer hardware do not qualify for exemption but remain eligible for overtime under FLSA. In addition, DOL stated in an opinion letter that an information technology support specialist whose primary duty consists of installing, configuring, testing, and troubleshooting computer applications, networks, and hardware does not qualify for the computer employee or the administrative exemption.
Outside sales personnel are exempt from both minimum wage and overtime requirements. There is no minimum salary requirement for the outside sales personnel exemption. An employee is classified as outside sales personnel if the job meets the following elements.
Standard duties test. The following standard duties test is the federal standard. To qualify for the outside sales personnel exemption, an employee must:
• Have a primary duty that consists of making sales or obtaining orders or contracts for services or the use of facilities for which a consideration will be paid by the client or customer
• Customarily and regularly work away from the employer's place or places of business
Sales. The FLSA defines “sale” or “sell” as any exchange, contract of sale, assignment to sell, shipment for sale, or other disposition (FLSA Sec. 3(k)).
Obtaining orders for the use of facilities. The FLSA regulations define this as:
• The selling of time on radio or television
• The solicitation of advertising for newspapers and other periodicals
• The solicitation of freight for railroads and other transportation agencies
Services. The inclusion of obtaining orders or contracts for services in the primary duties test extends the outside sales exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order.
Customarily and regularly. The term “customarily and regularly” is defined as:
• A frequency that is greater than occasional but may be less than constant
• Including work normally and recurrently performed every workweek
• Not including isolated or onetime tasks
Away from the employer's place of business. An outside sales employee is an employee who makes sales or solicitations, or related activities, at the customer’s place of business or, if selling door-to-door, at the customer’s home. Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not the owner or tenant of the property. Outside sales does not include sales made by mail, telephone, or the Internet unless such contact is used merely as an adjunct to in-person sales calls. Activities employees perform that are incidental to their outside sales or solicitations also qualify as exempt outside sales work, but only if the incidental activity is in support of their own sales and not just generally directed toward stimulating the sales of the company.
Promotional work. The following promotional work is considered to be exempt sales work:
• Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations
• Promotional activities directed toward consummation of the employee’s own sales
Promotional work that is not exempt includes:
• Promotional work that is incidental to sales made, or to be made, by someone else
• Promotional activities designed to stimulate sales that will be made by someone else
Drivers who sell. Drivers who deliver products and also sell those products may qualify as exempt outside sales employees only if the employee has a primary duty of making sales. If the employee has a primary duty of making sales, all work performed incidental to and in conjunction with the employee's own sales efforts, including loading, driving, or delivering products, is exempt work.
An administrative, executive, or professional employee with total annual compensation of at least $100,000 is exempt without passing the full duties test if the employee:
• Customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee
• Earns at least $455 per week paid on a salary or fee basis
• Has the primary duty of performing office or nonmanual work
The employee's annual compensation may include commissions, nondiscretionary bonuses, and other nondiscretionary compensation earned. The employee's annual compensation may not include board, lodging, and other facilities; payments for medical insurance; payments for life insurance; contributions to retirement plans; or the cost of other fringe benefits.
If an employee's total annual compensation does not total at least the minimum amount by the last pay period of the 52-week period, the employer may, during the last pay period or within 1 month after the end of the 52-week period, make one final payment sufficient to achieve the required level.
If the employee does not work a full year, the employee may still qualify for the exemption if the employee's pro rata portion of salary earned meets the salary requirement.
The white-collar exemptions do not apply to manual laborers or other blue-collar workers who perform work involving repetitive operations with their hands, physical skill, and energy. FLSA-covered, nonmanagement employees in production, maintenance, construction, and similar occupations, such as carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, operating engineers, longshoremen, construction workers, and laborers, are entitled to minimum wage and overtime premium pay under the FLSA and are not exempt regardless of how highly paid they might be.
The exemptions do not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, firefighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers, and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling, or extinguishing fires of any type; rescuing fire, crime, or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work.
Employers may, on their own initiative or under a collective bargaining agreement, provide a higher wage, shorter workweek, or higher overtime premium than required by the FLSA. While collective bargaining agreements cannot waive or reduce FLSA protections, nothing in the FLSA relieves employers from their contractual obligations under such bargaining agreements.
An exempt administrative, executive, professional, computer, or outside sales employee must have as his or her primary duty work that meets the first requirement of the standard duties test for the particular exemption. A determination of whether an employee passes the primary duty test is based on all the facts in a particular case. The amount of time spent in the performance of the required duties is a key factor.
In the ordinary case, "primary duty" means over 50 percent of the employee's time. However, time alone is not the only test. An employee who does not spend over 50 percent of his or her time in managerial duties might still have management as his or her primary duty if other pertinent factors are present. These include:
• The relative importance of the executive duties as compared with other types of duties
• The amount of time spent performing exempt work
• His or her relative freedom from supervision
• The fact that his or her salary is greater than the wages paid to other employees for the kind of nonexempt work performed by the executive
The concurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption. The regulations allow concurrent duties because, generally, exempt executives make the decision regarding when to perform nonexempt duties and remain responsible for the success or failure of business operations under their management while performing the nonexempt work. In contrast, the nonexempt employee generally is directed by a supervisor to perform the exempt work or performs the exempt work for defined time periods. For example, an exempt store manager will sweep the floor when he or she desires or needs to do so. A nonexempt janitorial employee, on the other hand, will sweep the floor at the order of the manager.
Combining work that is exempt under one category (e.g., professional) with work that is exempt under another (e.g., executive) is permitted for forming a combination exemption, provided the requirements for each exemption are met.
Employees of a retail or service establishment are exempt from the overtime requirements of the FLSA if their regular rate of pay is more than 11/2 times the minimum wage and more than half of their compensation during a representative period of at least 1 month (but not more than 1 year) is commissions on goods or services. This exemption applies to inside and outside sales personnel. For an establishment to be eligible to utilize this exemption, at least 75 percent of its annual dollar volume of sales must not be for resale, and the business must be recognized as retail or service in the particular industry.
Under the MCA exemption to the FLSA, the overtime provisions of the FLSA do not apply to motor carriers, such as truck drivers and their helpers, operating in interstate or foreign commerce. The exemption is not limited to those who ship large amounts of property or ship property as their principal business. A U.S. appellate court has held that the exemption extends to field engineers who carry tools, parts, and equipment in their private cars on interstate trips to install, maintain, and repair computers (Friedrich v. CableData, 974 F.2d 409, CA-3 (1992)). However, such personnel are still covered by the equal pay, minimum wage, and recordkeeping requirements of the FLSA.
Thus, the MCA overtime exemption applies to employees who are:
• Employed by a motor carrier or motor private carrier;
• Drivers, driver’s helpers, loaders, or mechanics whose duties affect the safety of operation of motor vehicles in transportation on public highways in interstate or foreign commerce, or
• Not covered by the small vehicle exception.
Motor carrier or motor private carrier. Motor carriers are persons providing motor vehicle transportation for compensation. Motor private carriers are persons other than motor carriers transporting property by motor vehicle if the person is the owner, lessee, or bailee of the property being transported, and the property is being transported for sale, lease, rent, or bailment, or to further a commercial enterprise.
Employee’s duties. The employee’s duties must include the performance, either regularly or from time to time, of safety-affecting activities on a motor vehicle used in transportation on public highways in interstate or foreign commerce. Employees must perform their duties as a driver, driver’s helper, loader, or mechanic. Employees performing these duties meet the duties requirement of the exemption regardless of the proportion of “safety affecting activities” performed, except where the continuing duties have no substantial direct effect on “safety of operation,” or where such safety affecting activities are so trivial, casual, and insignificant as to be de minimis, so long as there is no change in the duties. Transportation involved in the employee’s duties must be in interstate commerce (across state or international lines) or connect with an intrastate terminal (rail, air, water, or land) to continue an interstate journey of goods that have not come to rest at a final destination. Safety-affecting employees who have not made an actual interstate trip may still meet the duties requirement of the exemption if the employer is shown to have an involvement in interstate commerce, and the employee could, in the regular course of employment, reasonably have been expected to make an interstate journey or could have worked on the motor vehicle in such a way as to be safety affecting.
The overtime provisions of the FLSA will apply to an employee of a motor carrier or motor private carrier in any work week that the employee performs duties on motor vehicles weighing 10,000 pounds (lb) or less and the employee’s work, in whole or in part, is that of a driver, driver's helper, loader, or mechanic affecting the safety of operation of motor vehicles weighing 10,000 lb or less in transportation on public highways in interstate or foreign commerce, except vehicles:
• Designed or used to transport more than 8 passengers, including the driver, for compensation; or
• Designed or used to transport more than 15 passengers, including the driver, and not used to transport passengers for compensation; or
• Used in transporting hazardous material, requiring placarding under regulations prescribed by the Secretary of Transportation.
Whether a deduction is permissible or impermissible will depend on the facts in the particular case. The general rule is to stick to company policy and heed the list of permissible and nonpermissible deductions below. Remember, the FLSA does not regulate vacation, severance, sick (but see below), and holiday pay or rest and meal times. Most of these are a matter of company policy and should be enforced in a nondiscriminatory manner. As a general rule, employers should err on the side of caution when it comes to deducting exempt personnel. If an exempt employee abuses the company's policy on work time, employers cannot dock their pay. Instead, point out the policy and discipline the employee accordingly.
State law. In addition, be aware that many state laws do regulate areas that the FLSA does not. In these cases, the state law would control.
Personal reasons. Deductions may be made when the employee is absent from work for a full day or more for personal reasons other than sickness or disability. Thus, if an employee is absent for a day or longer to handle personal affairs, his or her salaried status will not be affected if deductions are made from his or her salary for such absences. If an employee is absent for less than a day, he or she must be paid for the full day.
It is important to note that employers may deduct from an employee's allotted personal time under the company's leave plan in increments of less than a day. The employer simply may not deduct an employee's pay for less than a day's absence.
Sickness/disability. Deductions also may be made for absences of a full day or more occasioned by sickness or disability (including industrial accidents) if the deduction is made under a bona fide plan, policy, or practice of providing compensation for loss of salary caused by both sickness and disability. Similarly, if the employer operates under a state or private sickness and disability insurance law, deductions may be made for a day or longer if benefits are provided under the particular law or plan. In the case of work-related accidents, the “salary basis” requirement will be met if the employee is compensated for loss of salary in accordance with the applicable workers' compensation law or the plan adopted by the employer, provided the employer also has some plan, policy, or practice of providing compensation for sickness and disability for non-work-related accidents.
Sickness and disability deductions are an area of confusion for some employers. It is important to distinguish between deducting from an exempt employee's paycheck and deducting from an employee's allotted sick time. The employer may not deduct from an employee's pay for less than a day's absence for sickness or disability. But, if an employer, for example, provides an employee with 2 weeks of paid sick time by company policy and the employee has used up all of his or her sick time, an employer may deduct from the employee's paycheck in full-day increments if the employee is out for a day or more. If the employee works for any part of a day, though, and is out sick the remainder of the day, the employer may not deduct from the employee's paycheck.
On the other hand, employers may deduct from an employee's allotted sick time under the company's leave plan in increments of less than a day as long as the employee has not used up his or her paid sick time.
When the sickness/disability deduction applies. An employer may make a deduction from an exempt employee's salary for the employee's full-day absences due to sickness provided the deduction is made in accordance with a bona fide plan, policy, or practice of providing wage replacement benefits for such absences. Deductions may also be made for the exempt employee's full-day absences due to sickness before the employee has qualified for the plan, policy, or practice or after the employee has exhausted the leave allowance under the plan. For example, an employer's sick leave plan provides each employee with 10 paid sick days per year. An employee must work for the employer for 90 days before becoming eligible for the sick leave benefit. In this example, a deduction of 1 or more full days may be made from the salary of an exempt employee who is absent due to sickness:
• Before the employee becomes eligible to participate in the sick leave plan (i.e., in the initial 90 days of employment);
• After the employee has exhausted the 10-day leave entitlement under the sick leave plan; and
• When the employee receives compensation according to the employer's sick leave plan. In this case, the employee would most likely not see a reduction in pay, but rather, the employee's sick leave benefit would be reduced by the number of days he or she was absent due to sickness and for which compensation from the plan was received.
Family and Medical Leave Act (FMLA) leave. Employers may dock the pay of otherwise salaried and exempt employees for family and medical leave-related absences of less than 1 full day without affecting their exempt status but only in situations where the employer is required to provide leave under the FMLA. Please see the national Leave of Absence section.
Safety penalties. Suspensions imposed in good faith for infractions of significant safety rules will not affect the employee's salaried status. Significant safety rules include only those relating to the prevention of serious danger to the plant or other employees, such as rules prohibiting smoking in explosives plants, oil refineries, and coal mines.
First and last week of employment. An exempt employee's salary may be docked during the first and last week of employment if the employee works less than a full workweek. Payment of a proportional amount of the employee's salary for the time actually worked meets the salary pay requirement for those weeks.
Disciplinary suspensions. Deductions from the pay of exempt employees may be made for unpaid disciplinary suspensions of 1 or more full days imposed in good faith for infractions of workplace conduct rules. The employer must have a written policy applicable to all employees in order to do this. For example, an employer may suspend an exempt employee without pay for 3 days for violating a generally applicable written policy prohibiting sexual harassment or workplace violence.
No work available. If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available.
Caused by employer or operations of business. No deductions may be made from the employee's compensation for time lost caused by the employer or by the operating requirements of the business.
Jury duty/witness appearance/military leave. Deductions may not be made for absences for jury duty, attendance as a witness, or temporary military leave. The employer may, however, offset any fees the employee receives as a juror or witness or military pay for a particular week against the salary due for that particular week without loss of the exemption.
Less than a full day. Exempt employees should never be docked for less than a full day because to do so would require calculating an hourly wage.
Fines. Deductions from the pay of exempt employees to cover the cost of damaged or lost equipment are impermissible. DOL has stated in an opinion letter that employers may not fine exempt employees who lose or damage equipment as a way around the ban on pay deductions for such costs. Even out-of-pocket reimbursements would prevent employees from receiving their predetermined salaries free and clear and would, therefore, violate the salary basis requirement.
An employer that makes improper deductions from salary will lose the exemption if the facts demonstrate that the employer did not intend to pay the employees on a salary basis. According to the FLSA’s regulations, an actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis. The factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to:
• The time period during which the employer made improper deductions
• The number and geographic location of employees whose salaries were improperly reduced
• The number and geographic location of managers responsible for taking the improper deductions
• Whether the employer has a clearly communicated policy permitting or prohibiting improper deductions
• The number of improper deductions, particularly as compared to the number of employee infractions warranting discipline
If an employer has an actual practice of making improper deductions from the pay of exempt employees, the employer will lose the exemption for the entire class of employees in that job classification who work for that manager. The FLSA regulations emphasize, though, that improper deductions that are either isolated or inadvertent will not result in loss of the exemption, as long as the employer reimburses the employees for improperly deducting from their pay.
Safe harbor rule. The safe harbor rule indicates that an employer may prevent the loss of the exemption by:
• Having a clearly communicated policy, which includes a complaint mechanism, that prohibits improper pay deductions
• Reimbursing employees for any improper deductions that have occurred
• Making a good-faith commitment to comply with the regulations in the future
But, if the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints, the exemption will be lost during the time period in which the improper deductions were made. The FLSA regulations outline the best evidence of a clearly communicated policy:
• A written policy
• Distributed to employees prior to the improper pay deductions by providing a copy of the policy to employees at the time of hire; publishing the policy in an employee handbook; publishing the policy on the employer’s intranet
An employer may provide an exempt employee with additional compensation, such as overtime, without losing the exempt status or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis. For example, the exemption is not lost if an exempt employee who is guaranteed at least $455 each week paid on a salary basis also receives overtime compensation based on hours worked for work beyond the normal workweek. And an exempt employee guaranteed at least $455 each week paid on a salary basis may receive additional compensation of a 1 percent commission on sales. An exempt employee may also receive a percentage of the sales or profits of the employer if the employment arrangement includes, as well, a guarantee of at least $455 each week paid on a salary basis.
Such additional compensation may be paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half, or any other basis), and may include paid time off.
Most employers do not require exempt workers to keep track of hours. This is fine as long as the employer is absolutely sure the workers are exempt. If it is later determined that an employee was nonexempt, that employee might make a claim for overtime pay. If there are no records of the employee's work hours, the employer will have great difficulty countering the employee's claim as to the number of hours he or she worked. Time sheets for exempt employees should record sick days, floating holidays, vacation time, jury duty, bereavement, and other absences. However, exempt employees may not be docked pay because of a variation in the quantity of work performed and recorded.
Employers may require exempt employees to work specific hours, for example from 8 a.m. to 6 p.m. If an employee violates this type of policy, the employer may not dock the employee's pay but may use other forms of discipline.
DOL recently released several opinion letters addressing how furloughs affect exempt employees. The following are the main principles:
Weeklong furlough. If an employer sets up a weeklong furlough and doesn’t pay exempt employees, there is no risk of losing the employees’ exempt status because the FLSA regulations provide that exempt employees need not be paid for any workweek in which they perform no work.
Partial-week furlough deducting employee pay. If an employee sets up a partial-week furlough and deducts the pay of exempt employees for the furlough days, the employees are at risk of losing their exempt status and may be entitled to overtime.
Partial-week furlough using vacation time. If an employer sets up a partial-week furlough and uses vacation time for the furlough time so that the employees receive their usual salary, there is no risk of losing the exemption. But this requires that every employee on furlough has enough vacation time to cover the furlough.
Permanent furlough arrangement. Employers may set up a permanent change in an employee's usual weekly schedule, such as changing the weekly work schedule from 5 days to 4 days, and altering the employee's salary to match. As long as the exempt employees’ receive at least the $455 weekly salary required by the FLSA for exemption, they will remain exempt.
Last updated on June 8, 2017..
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