In our FLSA Simplified blog, we discussed the importance of digging deeper into these new regulations. Simply being familiar with the concepts of minimum wage and overtime pay is not enough. as even a tiny oversight in this area can be very costly.
Another major challenge that companies encounter when attempting to comply with FLSA regulations is distinguishing between exempt and non-exempt employees. Understanding these categories is vital as this classification determines eligibility for overtime pay and minimum wage protections.
So, how do I know whether employees are exempt or not?
Determining FLSA Status: To accurately determine whether employees are exempt or not, you should:
- Review the specific job duties and responsibilities of the position against FLSA criteria.
- Ensure that the employee’s salary meets or exceeds the minimum threshold for exempt status.
- Regularly reassess classifications to account for changes in job duties or FLSA regulations.
The general definition for these terms is:
- Exempt Employees: Usually includes salaried workers who perform executive, professional, or administrative duties. These employees are exempt from FLSA overtime requirements based on:
- Their job duties, which generally require discretion, managerial responsibilities, or specialized knowledge.
- A salary threshold, where they must be paid a predetermined amount that exceeds a specific level, regardless of hours worked.
- Non-Exempt Employees: Are entitled to overtime pay. This category typically includes hourly workers, but salaried employees can also be non-exempt depending on their specific duties and earnings.
To help make this assessment for your own employees, we’ve prepared a checklist to help you identify which employees are exempt.
The Exemption Criteria Checklist
To correctly identify which employees are exempt from overtime rules, it’s essential to remember that job titles and pay structure (hourly or salaried) do not determine exempt status. Instead, job duties and salary level are the main decisive factors.
To guide you, here’s an overview of the different tests and exemption categories:
- Salary Basis Test: Employees must be paid a predetermined and fixed salary that will not be reduced based on the quality or quantity of the work performed.
- Salary Level Test: Employees must earn a minimum salary threshold to qualify for exemption. As of the last update, this amount is $684 per week, but it’s crucial to continually check for the most current threshold.
- Duties Test: Employees’ job duties must primarily involve executive, administrative, or professional tasks as defined by the FLSA.
Exemption Categories:
- Executive Exemption: Can apply to employees who manage the business or a department, direct the work of two or more employees, and have the authority to hire or fire.
- Administrative Exemptions: Applicable to employees performing office or non-manual work directly related to management or general business operations and have the authority to exercise independent judgment.
- Learned Professional Exemption: Includes employees engaged in work requiring advanced knowledge in a field of science or learning, usually acquired through prolonged education.
- Creative Professional Exemption: Is for employees who perform work that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
- Computer Employee Exemption: Can be used if your employee is employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled position in the computer field.
- Outside Sales Exemption: Pertains to employees whose primary duties are making sales (as defined by the FLSA), get some portion of their pay from customers, and regularly work away from the employer’s place or places of business.
- Highly Compensated Employees: Workers earning above a higher total annual compensation threshold may be exempt if they customarily perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee.
It’s important to note that these exemptions only apply to “white-collar” employees and that “blue-collar” workers who perform work that involves “repetitive operations with their hands, physical skill, and energy” are never exempt under the FLSA. Police officers, firefighters, paramedics, and other first responders can also not be classified as exempt.
Avoiding Misclassification: Best Practices
As noted before, misclassifying employees can lead to drastic legal and financial repercussions. If you follow our provided checklist, you should be able to more accurately determine if your employee can be considered exempt under FLSA regulations.
However, there are also some easy organizational steps that you can take to ensure that the risk of misclassification is as low as possible.
- Conduct Regular FLSA Status Audits: Just because you’ve identified the correct status for an employee doesn’t mean rules or duties can’t change over time. To ensure you’re always in compliance, regularly review both state and federal laws and current job duties to make sure they accurately reflect the work being performed.
- Educate Your HR Team: Always ensure that your HR personnel are well-versed in FLSA requirements and stay up to date on any changes to labor laws that could affect employee classification.
- Use Clear Definitions: A critical detail employers must understand is that not all salaried employees are considered exempt. Because salaried employees are typically exempt and hourly employees are non-exempt, many business leaders begin to refer to these terms interchangeably. This causes confusion and increases the odds of misclassification. To avoid this, make sure that job titles and descriptions clearly define the role, and that exemption status is always defined by the duties test and not by other arbitrary factors.
- Err on the Side of Caution and Consult with Experts: Other than slightly overpaying your employee, there are no downsides to classifying an employee as non-exempt and paying them overtime. So, if you struggle to classify an employee’s role, it’s always better to play it safe and classify them as non-exempt until you can consult with legal counsel or a labor law expert to clear up any confusion. Remember that it’s always better to invest in professional advice upfront than to face costly litigation down the line.
If you need more help determining FLSA status, or if you have specific questions regarding your employee’s exemption status, connect with our HR Consulting Manager, LeeAnn Anderson at landerson@psafinancial.com. Our team is happy to help you navigate the nuances of FLSA and the FWW rules and regulations.