Fair Labor Standards Act (FLSA) Exemptions

Many employers of all sizes do not understand the potential legal liability they face for improperly classifying their workers (employees vs independent contractors and exempt vs non-exempt) or not properly keeping track of the hours their employees work and paying overtime for all hours worked that exceed 40 hours in any given workweek for all non-exempt employees.   A large problem for employers that guess wrong concerning employee classification is they rarely have the proper documentation concerning the hours an employee actually worked if the employer wrongly assumed that a particular worker or class of workers were exempt.  Without that documentation it is often difficult for an employer to prove how many hours an employee actually worked in any given workweek.

The penalties for guessing wrong in the classification or mishandling these issues are severe.  In addition to having to potentially pay backpay for overtime, there is a federal statutory penalty of liquidated damages that effectively doubles the amount owed plus the employer will be separately responsible for paying the employee's attorney's fees as well as having to pay an attorney to defend the company.  There is also potential personal or individual liability for the owners of the business and the persons who are responsible for a company's pay policies.  An employee is allowed to sue for damages looking back for the past two years (and, in certain cases, three years) so the liability can add up to large numbers.  Employees can join together against an employer and bring a collective action as a single lawsuit, which multiplies the potential liability.

Therefore, it is important to attempt to properly classify a company's employees and to know whether a particular employee's time must be tracked so that overtime pay can be paid when the employee works more than 40 hours in any workweek.  There is some good news for employers - some employees are exempt from the Fair Labor Standards Act's overtime provisions because of the nature of the work they do.

Today's post summarizes those exemptions from the FLSA's overtime provisions.  In other words, the following categories of employees are not entitled to overtime compensation no matter how many hours they work in a particular workweek.

FLSA Exemptions

The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek.

However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees. Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees.  To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week.  Job titles do not determine exempt status.  In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations.  The requirements for the most commonly asserted “white collar” exemptions are listed below:

Executive Exemption

To qualify for the executive employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week;

• The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

• The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

Administrative Exemptions

To qualify for the administrative employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;

• The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Professional Exemption

To qualify for the learned professional employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;

• The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;

• The advanced knowledge must be in a field of science or learning; and

• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

Creative Professional Exemption

To qualify for the creative professional employee exemption, all of the following tests must be met:

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;

• The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Employee Exemption

To qualify for the computer employee exemption, the following tests must be met:

• The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour;

• The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;

• The employee’s primary duty must consist of:

1) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;

2) The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

4) A combination of the aforementioned duties, the performance of which requires the same level of skills.

Outside Sales Exemption

To qualify for the outside sales employee exemption, all of the following tests must be met:

• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

• The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Highly Compensated Employees

Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

“White Collar” Exemptions Do Not Apply To Blue Collar Workers

The exemptions provided by FLSA Section 13(a)(1) apply only to “white collar” employees who meet the salary and duties tests set forth in the Part 541 regulations. The exemptions do not apply to manual laborers or other “blue collar” workers who perform work involving repetitive operations with their hands, physical skill and energy. FLSA-covered, non-management employees in production, maintenance, construction and similar occupations such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers are entitled to minimum wage and overtime premium pay under the FLSA, and are not exempt under the Part 541 regulations no matter how highly paid they might be.

Police, Fire Fighters, Paramedics & Other First Responders

The exemptions also do not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, fire fighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work.

If you have any questions about these issues, feel free to contact me at (713) 388-6150 or email me at [email protected].