The Fair Labor Standards Act (FLSA) is often misunderstood or misinterpreted, and the penalties can be significant. It is important that companies understand the exemption rules and appropriately classify their employees under the law.
First thing’s first. What is the FLSA? According to the Department of Labor, the Fair Labor Standards Act “establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.”
Simply put, this means that any employee who works more than 40 hours per week must receive overtime pay unless that employee is exempt under the FLSA.
Exempt vs. Non-Exempt
All employees are eligible for overtime pay unless they meet all three of these criteria:
- They are salaried, not hourly, employees.
- Their salary is greater than $684 per week or $35,568 per year.
- Their position falls under one of seven exemption categories.
If any one of these criteria is not met, then the employee is not exempt from the law and must be paid overtime pay. Let’s take a closer look at each of these pieces.
Knowing whether your employee is paid a salaried or hourly wage is simple. But when it comes to the amount paid, that can be a little trickier to determine in some situations.
For example, commissions count in some situations but not others. If you have an outside sales position on your team, then overtime is not required.
However, a sales position that receives the minimum quarterly pay can count up to a specific dollar amount of their commissions toward their salary pay, in which case they may not be exempt from being paid overtime.
Knowing these different scenarios is essential to ensuring your business is in compliance with the FLSA.
Job Duty Exemptions
There are seven categories that qualify as exempt and, therefore, do not qualify for overtime pay. Those categories are as follows: executive, administrative, professional, computer, outside sales, and highly compensated employees.
For each of these categories, there are certain criteria that must be met in order for the employee to be considered exempt. Let’s take a closer look.
Executive Exemption is just what you might think. The people in the executive and management roles within a company or organization. These are the people in charge of multiple departments, oversee many employees and have the ability to hire and fire people.
For the exact criteria specifications, take a look at the DOL fact sheet here.
Just like with Executive Exemption, Administrative Exemption also has a set of criteria to qualify. These employees are your office and non-manual employees whose work directly relates to the overall management and general business of the employer. Some examples of positions like this would be anyone in accounting and finance, the marketing and advertising departments and anyone in human resources.
Here’s the DOL fact sheet with exact details regarding Administrative Exemption.
The Professional Exemption lays the foundation for “learned professions” that typically require a person’s discernment and judgement to maintain their role responsibilities. The employees that fall into this exemption often have a post secondary education certificate in at least one specialized area of knowledge. Examples include: practicing law, medicine or teaching.
For detailed information on this exemption, check out this DOL fact sheet.
Computer Employee Exemption
The Computer Employee Exemption extends to your computer programmers, software engineers and those of similar duties. These are the employees who are creating software and programs that are essential to the company’s function. It does not include those who repair or computer hardware or other technological equipment.
Find the fact sheet here.
Outside Sales Exemption
To qualify for the Outside Sales Exemption status, the employees main function must be to make sales or obtain orders which is typically done away from the typical place of employment. This could include product sales, services or advertising.
This Exemption category could pose as a little more tricky than some of the others, simply due to the vast variety of sales positions that are out there. Lucky for us, the DOL made a fact sheet for this one, too.
Highly Compensated Exemption
Last but not least, we come to Highly Compensated Employees. While some people may think this would fall under the same criteria as the Executive Exemption, that is not the case. To qualify for Highly Compensated Exemption, the employee must regularly direct the work of at least two other employees and meet a minimum salary requirement, even if they don’t meet the other criteria outlined in Executive Exemption.
The full details on the distinction between Executive and Highly Compensated can be found here.
At the end of the day, it’s a pretty safe bet to guess that the majority of your employees will fall into the “Non-Exempt” category. But having a good grasp on the difference between the two is of the utmost importance.
While all of these different exemptions might seem tedious to comb through, it is absolutely essential that your company understands these details and abides by the law set forth. As usual, People Solutions Center is here to help. Contact us today!