Exempt or Non-Exempt Employee? 6 Questions to Help Employers Know the Difference

“As an employer, you may assume you know the difference between non-exempt employees who are entitled to overtime, and exempt employees who are not. For example, you may assume that an employee paid a salary and given certain supervisory authority is exempt. But this assumption is wrong. Misclassifying an employee as exempt when s/he is not … will cost you.” (Exempt or Non-Exempt Employee? The Wrong Response Can Cost You by Ford & Harrison LLP)

Are your employees exempt or non-exempt? Which ones? They’re important questions: employees classified as “exempt” are excluded from both the minimum wage and overtime pay requirements of the Fair Labor Standards Act (FLSA). But answering incorrectly can be costly, and companies that have misclassified non-exempt employees can be liable for unpaid overtime, damages, and civil penalties.

For your reference, here are six questions (and answers) that will help you to correctly classify the people working for you:

1. Which Employees Can Be Considered for Exempt Status?

“Common exemptions from FLSA provisions are positions where the job duties are classified as Executive, Administrative and Professional… There are also many other exempt positions and often it seems as if there is not a rhyme or reason to the exemption. For example, teachers are considered exempt, but police officers are classified as non-exempt.”  (Overtime Roulette: Seven Mistakes that Could Cost You by Jaburg Wilk)

2. How is Exempt Status Determined? 

“For an employee to be considered exempt, there are three tests that the employee must meet:

  1. the salary level test;
  2. the salary basis test and;
  3. the job duties test”

(Overtime Exceptions? Exemptions! by Dinsmore & Shohl LLP)

3. What is the Salary Level Test?

“Many employers operate under the mistaken assumption that an employee can be classified as ‘exempt’ (and therefore not entitled to overtime) simply by paying such employee on a salaried basis. To be exempt under the FLSA, employees must receive not only a guaranteed minimum weekly salary of at least $455 per week (which is higher in many states)…” (The Top 7 Most Common Wage and Hour Mistakes by Fox Rothschild)

4. What is the Salary Basis Test?

“Being paid on a ‘salary basis’ means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work. Subject to certain exceptions, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.” (Five Common Employment Law Hazards for Start-Ups by Foley Hoag LLP)

5. What is the Job Duties Test?

“Under the FLSA, being salaried is usually a necessary condition for exemption, but not a sufficient one. The employee must also satisfy the ‘duties’ requirements for the executive, administrative, or professional exemptions. (There are exemptions for outside salespersons and certain computer employees that do not require payment of a salary.) This is why clerical employees, for example, fill out time sheets and (should) get overtime if they work more than 40 hours in a workweek.” (The Fallacious Five: Employment Law Misconceptions That Trip Up Employers by Constangy, Brooks & Smith, LLP)

6. What about Employees with Multiple Job Duties?

“When an employee performs work in more than one capacity for the same employer – e.g. as a clerical worker (non-exempt) and manager (exempt) – employers must consider the character of the employee’s job as a whole… [I]f the exempt managerial duties are the primary duty, the employee will be exempt.” (What Do You Mean the Job May No Longer Be Considered Exempt? by Franczek Radelet P.C.)

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See also: Fair Labor Standards Act: Non-Compliance Is Costly (Warner Norcross & Judd)

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