Fair Labor Standards Act (FLSA) Exempt vs. Non-Exempt

FLSA Exemption

The FLSA’s rules concerning overtime do not apply to certain kinds of jobs. This FLSA exemption comes in two varieties. Some positions may be excluded within the actual statute. These jobs include agricultural workers and movie theatre employees. Other positions are excluded from the FLSA’s coverage because they are covered by a separate federal employment statute. In general, if a different federal law governs a specific job, then the FLSA doesn’t cover that job. For instance, the Motor Carriers Act applies to plenty of truck drivers, and the Railway Labor Act applies to the majority of railroad workers; therefore, the FLSA does not govern these types of jobs.

Exempt or Non-Exempt

When the FLSA covers a certain job, the employees in those positions are classified as either exempt or non-exempt. Under the FLSA, employees who are non-exempt should receive overtime compensation when appropriate. Exempt employees, however, are not entitled to overtime pay. Under the FLSA, most employees are non-exempt, though there is a minority that are exempt.

You may wonder how to tell the difference between exempt and non-exempt positions. By their title alone, some workers are automatically exempt. For instance, outside sales workers are exempt. In general, however, the exempt/non-exempt classification depends on three factors:

1. How much an employee is paid
2. How an employee is paid
3. The type of work duties an employee performs

Most of the time, an exempt employee must meet the following conditions laid out in the FLSA Regulations:

1. Be paid on a salary basis
2. Be paid a minimum salary required by the state
3. Perform job duties that are exempt

3 Part Tests To Determine Whether An Employee Is Classified As Exempt Or Nonexempt Under The FLSA

To be considered “exempt” under the FLSA, a worker must satisfy three tests:

Test 1: Salary Level Test

 As of 2023, the FLSA minimum salary test requires that an employer pays an employee at least $684 per week or $35,568 per year to be exempt. A highly compensated employee who is paid at least $107,432 is also exempt.

Test 2: Salary Basis Test

Under federal law, all employees are eligible for overtime pay unless the employee is exempt. The salary basis test help determine whether an employee is exempt from overtime pay. The salary basis test requires that an employee is paid a predetermined salary and cannot increase or decrease for any reason.

As a general rule, if an employee can trust that he or she will receive a guaranteed minimum payment for any workweek, he or she is paid on a salary basis. While the amount does not have to be the full compensation, it had to be some quantity of money that a worker can depend on receiving. This does not have to be the entire compensation value, but an amount that an employee can expect for doing some quantity of work during the week.

One way to tell whether an employee is salaried is to check whether the employee’s base pay is calculated using an annual figure divided by the number of paydays per year. Also, one should look at whether the employee’s pay is reduced in periods where he or she works fewer hours than normal. Just because an employee’s pay is described in hourly terms (ex: $28 per hour), he or she can still be an exempt employee paid a salary. What really matters is whether there is a guaranteed minimum amount of money an employee can expect, regardless of how much work is done.

The FLSA’s salary basis test is only relevant when applied to reductions in pay. If an employee is required to count work absences as leave, they are not losing pay. This is because the number on their paycheck will remain the same. Related to this, if an employer pays an employee more than the amount they are guaranteed, this should not affect the employee’s salary basis status. This is because there is not a reduction in the employee’s base pay.

An employee may not have their salary reduced according to the quantity or quality of their work, though there are a few exceptions. Essentially, this means that a salaried employee’s base pay may not be reduced if the employee does less work than usual. For instance, during slow periods when there is less work to be done, an employee may not be as productive. Such instances might include a factory shutting down or a slow retail month. Similarly, a salaried employee may not have their pay reduced for taking part of the day off. An employer may, however, reduce the base pay of a salaried employee in the event of disciplinary issues, sick leave taken under a sick leave plan, or personal leave.

Reductions in salary base pay can therefore be both permissible and impermissible. Reductions that are permissible do not impact the employee’s exempt status. Impermissible reductions, however, may affect an employee’s exempt status. In general, an employee who undergoes impermissible reductions is no longer compensated according to a salary basis. They are therefore non-exempt. That said, employers have a few ways to cure impermissible salary pay reductions. Because of this, it is unlikely that an exempt employee will become non-exempt due to issues with their salary base pay. It should be noted that some positions do not have the salary base pay requirement for exempt status. For example, lawyers, doctors, and schoolteachers are paid hourly, but are exempt employees.

Test 3: Job Duties Test

Even if an employee passes the salary level test and the salary basis test, he or she may only be classified as exempt if their position involves exempt job duties. In general, FLSA exemptions are for employees who have high-level positions. To determine the nature of a job requires examining what its specific responsibilities are. In this case, the job title is not particularly useful; a secretary may call herself an administrative assistant, but she is still a secretary according to her duties. A CEO may call himself a janitor, but he or she is still chief operating officer. This means that one must look at the actual duties and tasks associated with a position, and to examine how those responsibilities fit within the company’s operations.

Exempt job duties fall into three categories: executive, professional, and administrative.

Exempt executive job duties

 An employee is exempt if he or she performs the following executive job duties:

• Manages as the primary part of their job
• Supervises two or more employees on a regular basis
• Advises on the job status of other employees (hiring, promotions, firing, assignments)

If an employee is involved in management or supervision, it must be the main part of their job that occurs regularly. Also, they must be supervising other employees, not non-employees or outsiders. For instance, consider a secretary instructing the delivery men where to stack some boxes of supplies. This does not qualify as supervision. When it comes to supervising employees, the exempt employee must be supervising either (at least) two full-time workers or four part-time employees (one full-time worker is equal to two part-time workers).

On its own, supervision is not enough to prove exemption. Rather, the employee also needs to have management as a primary job duty.

The FLSA provides a list of what count as management duties:

• Setting hours of work and rates of pay
• Selecting, interviewing, and training employees
• Determining work techniques
• Planning work
• Reviewing productivity
• Disciplining employees
• Handling complaints and grievances
• Dividing assignments
• Planning budgets
• Determining what equipment is needed
• Checking for legal and regulatory compliance
• Providing for security and safety of the workplace

Whether or not an employee has management as a focus of their job requires looking at the specific case. One should look at whether an employee is in charge of a subdivision or department, including a shift. One way to determine this is to call a company and ask for the employee who is ‘in charge’ or ‘the boss.’ Generally, there is only one employee in this position at any one time. For example, if a customer asks for the manager, or boss, of an establishment, this employee is likely exempt.

Even if an employee also performs regular job duties, they may still qualify as exempt if they also perform executive functions. For instance, the manager at a fast-food restaurant may spend much of the day making food and taking orders, but they are still the boss even when not performing executive tasks. If there are any executive decisions that need to be made, they are there to do them. This is sufficient proof of exemption.

An exempt employee must also have a say in issues related to personnel. While an employee does not have to make the final decisions to be exempt, their input needs to carry weight. This typically means that the employee will make personnel suggestions as part of their regular job duties. In this sense, it is a real part of their job, and not just a fluke assignment. Upper management should take this employee’s recommendations regading personnel seriously.

Exempt professional job duties

Certain professions, known as the learned professions, have job duties that are exempt. These positions include lawyers, dentists, doctors, architects, and teachers. Also included in this category are pharmacists, engineers with degrees, scientists, and other employees who have advanced knowledge in learned professions.

For professional work to be exempt, it must be intellectual in nature, often requiring high-level education and the use of judgment and discretion. Generally, these fields are more academic in nature than skilled trades. Exempt workers in this category tend to have education beyond high school and even college (master’s degrees and doctorates). While these degrees are often evidence of an employee’s exempt status in this field, they are not always necessary. For instance, an employee may have received an equivalent level of education via other ways – that is to say, they may have experience or certifications that make up for degrees.

Some employees may also have creative job duties; these individuals include actors, writers, musicians, journalists, and composers. This exemption covers employees whose work involves imagination, invention, and originality. Their unique interpretation qualifies them as exempt.

There are some grey areas in this category, especially when dealing with journalists and commercial artists. To determine whether an employee in these positions is exempt requires careful analysis of their role.

Exempt administrative job duties

Administrative job duties tend to be the hardest to define as exempt. According to the FLSA, administrative jobs are exempt when they involve the following duties:

• Nonmanual or office work
• Work related directly to management or the employer’s operations
• The use of independent discretion and judgment regarding matters of import

In general, the administrative exemption applies to high-level employees involved in keeping the business operational. One method of identifying these employees is dividing production and operational employees from administrative. Employees who create what the company sells are not administrative. Rather, administrative employees lend support to the employees involved in production, as staff and not line employees. Administrative functions of a business include personnel and labor relations (HR employees), records maintenance, payroll and finance, public relations, quality control, marketing and advertising, legal and regulatory compliance, and accounting.

For an employee in an administrative role to be exempt, they must do staff or support work related to significant matters. Clerical employees who perform nonmanual support or office work are not exempt. For administrative work to be exempt, an employee must use their own judgment in deciding matters related to the business as a whole and that can affect its operations in a significant way. Just because the administrative work has financial implications (the boss would lose money if the work was performed incorrectly) does not mean it is exempt work.

To help make this determination, one may ask the following questions:

• Does the employee create or interpret company policies?
• How significantly does the employee’s work affect business operations?
  • Buying printer ink vs. buying heavy equipment for manufacturing
• Can the employee commit the employer in financially significant matters?
• Is the employee authorized to deviate from company policy without prior permission?

As an example, let’s consider Naomi, a buyer for a jewelry store. While Naomi does not produce the jewelry or sell it, she is in charge of inventory, meaning she selects and orders specific pieces for the store to offer. Her job is thus necessary to the store’s operation because she is in charge of picking what the store will sell. This position offers independent discretion and judgment because Naomi must determine what items will sell, as well as estimate profit margins.

Secretaries who file forms, prepare reports, answer telephones, deal with customers, and order office supplies are not considered exempt employees. While secretaries may have to use independent judgment in certain matters, they are not usually decisions that affect the overall operations of the company. However, a secretary to a CEO who manages much of his life might well be exempt.

Rights of exempt employees

According to the FLSA’s rules concerning overtime, an exempt employee effectively has no rights. Under the FLSA, an exempt employee is really only entitled to the full value of their base salary during periods where they perform any work. Therefore, unaffected by the FLSA, an employer may require exempt workers to make up time, punch a clock, or work a certain schedule. The FLSA also does not control the hours an employer may expect from their employees. However, exempt employees may have rights under other statutes or through employment contracts and policies.

Rights of non-exempt employees

Under the FLSA, non-exempt employees are entitled to time and a half their normal rate of pay for every hour of overtime they work.