Are all of your employees eligible to receive overtime pay? Some employees are exempt from overtime pay and minimum wage laws. Exempt employee qualifications are determined by the Fair Labor Standards Act (FLSA). To run payroll correctly, you need to be familiar with exempt employees. What is an exempt employee?
What is an exempt employee?
Exempt employees are those exempt from overtime pay and minimum wage laws. To have exempt employee status, an employee must meet several exempt requirements. Your employee may qualify for exemption under the executive, administrative, or professional exemption; computer exemption; outside sales exemption; or highly compensated exemption.
Executive, administrative, or professional exemption
To qualify for the executive, administrative, or professional exemption status, an employee must:
- Receive a salary
- Earn above the minimum salary threshold
- Have executive, administrative, or professional job duties
1. Receive a salary
The first criterion for this exemption is that exempt employees must be salary instead of hourly workers. However, being salaried does not necessarily mean an employee is exempt. There are many nonexempt workers who receive a salary rather than hourly pay.
2. Earn above the minimum salary threshold
Employees must earn a salary of at least $35,568 per year, which is $684 per week, to be exempt from overtime pay.
3. Have executive, administrative, or professional job duties
One criterion for exempt status for employees includes having high-level responsibilities. These job duties have specific responsibilities that qualify them for exemption. There are three main categories that exempt job duties are divided into.
1. Executive exemption
To fall under executive exemption, an employee must be able to meet the following requirements:
- Manage your small business
- Direct two or more full-time employees
- Have the ability to hire, fire, promote, or change the status of other employees
2. Administrative exemption
To fall under the administrative exemption, an employee must meet the following requirements:
- Perform office or non-manual work related to the general business operations or management
- Use their own discretion when performing tasks without reporting to someone else
3. Professional exemption
To fall under the professional exemption, or “learned professional,” an employee must meet the following requirements:
- Job duties require advanced knowledge in the field of science or learning (e.g., law, medicine, engineering, etc.)
- Be certified in their particular field (e.g., college degree)
To fall under the “creative professional” exemption, an employee must meet the following requirement:
- Utilize invention, imagination, originality, or talent in an artistic or creative field
Computer exemption
Computer-related occupations may also qualify for exemption. To qualify, an employee must meet the following three requirements:
- Receive a salary of at least $684 per week or a fee of at least $27.63 per hour
- Work as a computer system analyst, computer programmer, software engineer, or something similar
- Have primary duties that meet the FLSA’s computer exemption requirements:
- Application of systems analysis techniques and procedures (such as consulting with users) to determine hardware, software, or system functional specifications
- Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs (such as prototypes) based on and related to user or system design specifications
- Design, document, test, create, or modify computer programs related to machine operating systems
- A combination of the above duties (if it requires the same level of skills)
Outside sales exemption
Outside sales employees are those who work in outside sales and meet both of the following requirements:
- Has a primary duty of making sales or obtaining orders or contracts
- Is regularly engaged away from the main business office
Highly compensated employee exemption
FLSA highly-compensated employees are those who receive a high salary. To qualify, an employee must meet both of the following requirements:
- Receive annual compensation totaling $107,432 or more
- Perform at least one of the executive, administrative, or professional duties
What positions are never exempt?
Some job positions are never exempt from overtime and minimum wage requirements. Exemptions do not apply to:
- Blue-collar workers: Manual laborers or other “blue-collar” workers who perform work involving repetitive operations with their hands, physical skill, and energy. This includes non-management employees in:
- Production
- Maintenance
- Construction
- Plumbing
- Craftsmanship
- Similar occupational roles
- First responders: Individuals whose work involves crime, rescue, investigations, or emergencies. This includes:
- Police officers, deputy sheriffs, and state troopers
- Detectives and investigators
- Firefighters
- Paramedics
Paying your exempt employee
You do not have to pay your exempt employees overtime wages or minimum wage. When it comes time to determine how to set salaries, consider the tasks your employees do and how much they work.
If your salaried employees frequently work more than 40 hours in a week, you might want to think about increasing their pay. You don’t want to take advantage of the fact that they cannot be paid overtime and compensate them poorly.
Be clear to your employees when you hire them that they are exempt from overtime wages. That might prevent any misunderstandings and wage disputes in the future.
Patriot’s online time and attendance software add-on to our online payroll software will make timekeeping easier for you. Employees can clock in and out online. Once you approve employee time cards, the hours are automatically entered when you run payroll. Try both for free!
This article has been updated from its original publication date of December 29, 2011.
This is not intended as legal advice; for more information, please click here.