Determining an employee’s exempt status under the Fair Labor Standards Act (FLSA) is crucial for ensuring accurate wage and overtime compliance. Misclassifying employees as exempt can lead to significant liabilities for employers. This article provides a comprehensive overview of the key factors to consider when classifying employees as exempt or non-exempt, focusing on salary threshold and job duties tests.

Understanding Exempt vs. Non-Exempt Employees

The FLSA establishes minimum wage and overtime requirements for most employees. However, certain categories of employees are exempt from these provisions. It’s essential to remember that:

• Exempt status is the exception, not the rule. The majority of employees are classified as non-exempt and entitled to overtime pay when applicable.
• A two-pronged test determines exemption. Employees must satisfy both the salary test and the job duties test to be considered exempt.

Salary Level Test for Exempt Employees

The FLSA mandates a minimum salary threshold for exempt classification. Earning above this threshold may qualify an employee for exemption, but it depends on their job duties (further details below). Employees whose salaries fall below this threshold are non-exempt and entitled to overtime regardless of their duties (with a limited exception).

• Current Minimum Salary Threshold: $35,568 annually ($684 per week).
• Salary Basis Requirement: Exempt employees receive a predetermined salary per pay period, regardless of hours worked.

Today, the Department of Labor (DOL) issued its final rule to implement a graduated increase to the salary threshold for exemption. On July 1, 2024, the salary threshold will increase to $43,888 annually ($844 per week). On January 1, 2025, the salary threshold will increase again to $58,656 annually ($1,128 per week).

Job Duties Test for Exempt Employees

After confirming an employee meets the salary threshold, a thorough analysis of their job responsibilities is required to determine if they qualify for an exemption based on their duties. The FLSA outlines seven categories of exempt employees, each with distinct requirements:

Executive Employees

• Primary duty is to manage the enterprise or a designated department/subdivision.
• Supervises the work of at least two or more employees.
• Possesses authority to hire, promote, fire, or significantly influence such decisions.

It is important to remember that a job title is not determinative. Someone with “manager” or “executive” in his or her job title, but with none of the responsibilities will not be exempt.

Administrative Employees

• Performs office or non-manual work related to the company’s operations.
• Empowered to exercise independent judgment and discretion regarding matters of significance.

This exemption is frequently misused. True exempt administrative employees make independent decisions impacting business operations, not merely following established procedures.

Learned Professionals

• Engages in work requiring advanced knowledge or is intellectual in nature.
• Possesses expertise in a field demanding a prolonged course of study (e.g., law, medicine, recognized professions).

The key here is that the employee is working in a field where specialized training is a standard prerequisite for entering the profession. While certain skilled “blue collar” trades go through a period of apprenticeship, they are generally not covered by this exemption.

Creative Professionals

• Performs work requiring invention, imagination, or originality in creative fields (e.g., music, writing, graphic art).

To fall within this exemption, an artist must have the ability to inject some individuality into the work they are creating for their employer. By way of example, a cartoonist who is told the underlying concept of a cartoon, but must reply on his/her own creative ability to express the concept would fall under this exemption.

Computer Employees

• Holds a position as a computer systems analyst, programmer, software engineer, or similar skilled workers in the computer field.
• Primary duties must involve:
  • Application of systems analysis techniques and procedures;
  • Design, development, documentation, analysis, creation, testing, or modification or computer systems or programs;
  • Design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
  • Any combination of the aforementioned.

Just having “computer” in the job title isn’t going to make the position exempt. Computer manufacturing and repair occupations are specifically excluded from exemption.

Outside Sales Employees

• Primary function is generating sales or securing contracts.
• They must customarily and regularly work off-site (50% or more of their working time), but does not include employees who work remotely from home.

Unlike the other exemptions, there is no minimum salary threshold to meet for exemption.

Highly Compensated Employees

• Earn a minimum of $107,432 annually (which must include at least $684 per week).
• Performs primarily office or non-manual work.
• Customarily performs at least one of the duties characteristic of the executive, administrative, or professional exemptions above.

While a high salary suggests potential exemption, a detailed job duties analysis remains advisable. Remember, the United State Supreme Court recently found that an off-shore oil rig worker making more than $200,000 a year was entitled to overtime under the FLSA.

Under the DOL’s proposed rule, the salary threshold for highly compensated employees would also increase — to $143,988 annually — if implemented as proposed.

Crucial Considerations for Proper Classification

Do not solely rely on salary or job titles. A meticulous examination of an employee’s day-to-day responsibilities is essential for accurate classification. NAE provides members with a FLSA Exemption Checklist, available for download from our Member Portal, to assist in determining an employee’s status under the FLSA.

Seek guidance from a trusted advisor or legal counsel. NAE has over 85 years of experience helping employers navigate employment issues, including employee classification, and other wage and hour issues. Contact our team of human resources and legal professionals today.

By adhering to these guidelines and leveraging available resources, employers can minimize the risk of employee misclassification and ensure compliance with FLSA regulations.