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February 07, 2011
Exempt vs. Nonexempt: Most Confusing Wage/ Hour Issue

Determining whether employees are exempt or nonexempt is the most confusing wage and hour issue, according to a recent BLR poll. While this area of employment law is complex, it’s important for employers to make sure they are classifying workers correctly, especially given the rise in wage and hour claims.

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"During an investigation, DOL representatives visit a business and gather data on wages, hours, and other employment practices in order to determine compliance with the law. The DOL may visit your workplace and examine up to 3 years of records if an employee complains about not receiving overtime," says BLR legal editor Susan Prince, J.D.

The poll asked respondents “Which of the following is the most confusing wage and hour compliance issue?” The results are displayed below:

Whether workers are exempt or nonexempt
75 %
Whether workers are employees or independent contractors

18 %

Whether unpaid interns should really be classified as paid employees

7 %

Determining Whether Employees are Exempt vs. Nonexempt: Two-Part Test

Under the Fair Labor Standards Act (FLSA), in order for an employee to be exempt from minimum wage and overtime requirements, the employee must satisfy a two-part test.

First, the employee must meet the salary basis test. This means that the employee must be paid on a salary basis and receive a minimum salary of $455 per week. Exempt employees must generally be paid a predetermined amount each pay period, regardless of any variation in the quality or quantity of their work. With limited exceptions, exempt employees must receive their full salary for any week in which they perform any work, without regard to the number of days or hours worked. However, the employees need not be paid for any workweek in which they perform no work.

The second part of the exemption test is the duties test. This is a little more complicated as there are several categories of exempt employees: administrative; executive, professional; outside sales; and computer specialists (who may be paid hourly if the rate is at least $27.63 per hour). Each category has its own set of required duties. Apart from the test, there several issues that employers need to be aware of. For example:

  • Impermissibly deducting from an exempt employee's pay can result in the loss of exempt status.
  • Outdated job descriptions or classifications can also lead to employees being misclassified.

To complicate matters further, state law may affect the exempt vs nonexempt analysis with additional rules and regulations.

For more information, visit the Exempt Employees topic section of

Take this week's Compensation poll.

Related article:

Possible FLSA Recordkeeping Rule Could Have Huge Impact Employers

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