What Does It Mean To Be Exempt From FLSA?
The Fair Labor Standards Act (FLSA) has made two distinctions between a company or organization’s employees: exempt and non-exempt. Non-exempt employees must record their hours worked each workweek and must be paid overtime wages in an amount of 1.5 times their regular rate of pay for all hours over 40 in a workweek.
Most nonexempt employees are paid by the hour, but some are paid a salary, or via other methods such as piece rates, commissions, or a combination of pay methods. Although some employers require exempt employees to track their hours worked, many do not. An exempt employee is not paid overtime wages for hours worked over 40 in a workweek.
To be considered exempt from FLSA, an employee must be paid on a salary basis, and must have exempt job duties.
Salary Basis: A salary basis means that the employee receives a predetermined salary regardless of the number of hours they work. As of January 1, 2020, the FLSA salary threshold is $36,568 per year (or $684 per week). The FLSA rules allow employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid annually to satisfy up to 10% of the standard salary threshold.
Exempt Job Duties: For an employee to be considered exempt under the FLSA, their job duties must also be exempt duties. This analysis is referred to as the "duties test." Exempt jobs under the FLSA generally fall into five main categories, but there are several other miscellaneous exemptions. The five primary exemptions are executive, administrative, professional, computer, and outside sales employees. The employee's primary job duties for each category are summarized below:
- Executive: To be exempt, an executive's primary job duty must be management of the enterprise, or managing a customarily recognized department or subdivision of the enterprise. The employee must also customarily and regularly supervise at least two full-time employees or their equivalent and the employee must have authority to hire and fire employees (or their suggestions are given particular weight).
- Administrative: To be exempt, an administrative 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 must exercise discretion and independent judgment with regard to matters of significance.
- Professional: To be exempt, a professional employee's primary duty must be performance of work requiring advanced knowledge in a field of science or learning and the advanced knowledge must be customarily acquired by a prolonged course of specialized study.
- Computer Employee: To be exempt, a computer employee must be employed as a computer systems analyst, computer programmer, software engineer, or other similar skilled worked in the computer field, and their primary duty must consist of (1) the application of systems analysis techniques and procedures, (2) the design, development, documentation, analysis, creation, testing or modification of computer systems and programs 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 these duties.
- Outside Sales Employee: To be exempt, an outside sales employee must have a primary duty of making sales or obtaining orders or contracts for services, and the employee must be customarily and regularly engaged away from the employer's place of business.
The body of legislation known as the FLSA for two reasons: to protect a company or organization’s employees from being required to work extensive hours and not adequately compensated for their time, and to discourage employers from overworking their current employees and as an incentive to hire additional employees. In essence, the FLSA’s purpose was to either dissuade long work hours for those currently employed and more job opportunities for those unemployed, or provide higher income for employees.