Exempt Or Nonexempt, That Is The Question

After reading comments on numerous forums and blogs pertaining to FLSA regulations, especially that of the classification of employees as exempt or nonexempt, it seems to me that there is still some confusion on how to properly classify employees.  One misconception is that all salaried employees are automatically exempt from overtime pay.  Or that an employee is exempt simply because their title appears to fit into an exempt classification.  Both are common misunderstandings but I hope that the information below will help you better determine and employee’s status under FLSA regulations.

A Bit of Background
The terms, exempt and nonexempt come from legislation known as the Fair Labor Standards Act (FLSA). The FLSA was designed to protect workers from being required to work long hours without extra payment.  The difference between exempt and non-exempt simply refers to what employees are to receive overtime pay and which employees do not.  Employees who qualify as exempt are exempt from overtime regulations as well as minimum wage laws while those employees classified as nonexempt must be paid for any overtime they work. 

What’s the Difference?
    Employees classified as nonexempt:

• Are paid for all hours worked, including overtime pay
• Must be paid no less than the federal minimum wage (or a state’s minimum wage, whichever is greater) and at an overtime rate no less than one and one-half times his/her regular rate of pay if working beyond a certain number of hours in a day or week
• Are paid more frequently
• Must take rest breaks and meal breaks

    Employees classified as exempt:

• Are paid to get the job done regardless of hours worked
• Are paid an established salary
• Are not eligible for overtime pay              
• Are not required to take meal breaks or rest breaks

How to Determine Status
In general, there are three basic tests to help determine if an employee is exempt or nonexempt: the salary level test, the salary basis test, and the duties test.  First, you must look at the employee’s salary level.  If the employee makes less than $455 per week he/she is to be classified as nonexempt. The employee is subject to FLSA regulations such as being paid an hourly rate no less than $7.25 per hour (or a state’s minimum wage, whichever is greater) and is to be given no less than one and one-half times his/her regular rate of pay if working beyond 40 hours in a workweek.  If the employee meets the salary level test, then move on to the salary basis test.  

Determine if the employee regularly receives a predetermined amount of compensation for each pay period in which the employee performs any work, regardless if there is a variation in the quality or quantity of work performed.  If the employee falls into this category, the employee would be classified as exempt unless they are an outside sales employee, doctor, lawyer, teacher, or of a certain computer-related occupations paid at least $27.63 per hour.

If the employee meets both the salary level test and the salary basis test, they must also meet the job duties test before being classified as exempt.  FLSA exemptions are limited to employees who perform relatively high-level work.  As mentioned in the opening of this blog post, you cannot determine an employee’s status by simply looking at the job title.  For example, a secretary is still a secretary even if he/ she has the title of "administrative assistant" and a CEO is still a chief executive officer even if he/she is called a warehouse attendant or a cashier.  You must look at the actual job tasks performed, along with how those tasks effect your company’s overall operations.  Categories of jobs that are typically, but not always, exempt are those with executive (supervisors, managers), learned professional (registered nurses, lawyers), creative professional (artists, actors) or administrative (accounting, marketing) duties.  Also, outsides sales representatives and certain computer employees may be exempt as well.

    Exempt Executive Job Duties
    Job duties considered exempt executive job duties are: 

• If the employee regularly supervises two or more other employees, and also
• has management as the primary duty of the position, and also
• has some genuine input into hiring, firing, promotion, or assignment decisions.

    Exempt Professional Job Duties
    Job duties considered exempt professional job duties are: 

• Primary duties of a learned professional require an advanced knowledge of a particular field such as engineering, teaching, law, medical, etc. and that knowledge is usually but not necessarily, acquired with prolonged advanced education.  This job requires specialized education and involves the exercise of discretion and judgment.
• Primary duties of a creative professional require invention, imagination, originality or talent in a recognized artistic or creative field. 

    Exempt Administrative Job Duties
    Job duties considered exempt administrative job duties are: 

• The performance of office or non-manual work directly related to the management or general business operations of the employer or employer’s clients, and
• includes the exercise of discretion and independent judgment with respect to significant business matters

How to Make Your Job Easier
Correctly classifying employees as exempt or nonexempt can be challenging but if you know where to start and willing to familiarize yourself with the exemptions allowed by FLSA, you can help protect you and your company from penalties stemming from not adhering to FLSA regulations.  

HRTMS just released a new feature for HRTMS Jobs that allows users to easily determine an employee’s exempt or nonexempt status by simply filling out an interactive FLSA compliance questionnaire.  The new wizard breaks the questionnaire into a series of questions based on job duties (administrative, executive, computer professional, outside sales, and professional) and provides you with the job’s exempt status based on your answers.  What’s nice about this feature is that it allows compensation and other HR employees to access the questionnaire at any time and the questionnaire is integrated with each job description.  Please click here to watch a video about the new FLSA Questionnaire feature along with other features of HRTMS Jobs.

You can also go to the Department of Labor’s website athttp://www.dol.gov/whd/flsa/#.UG9XH1Gz5vA   or fill out SHRM’s FLSA: Exemption Test Questionnaire athttp://www.shrm.org/TemplatesTools/Samples/HRForms/Articles/Pages/1CMS_018238.aspxxfor more help on determining employee exempt status. 

Resources 
http://www.dol.gov/whd/flsa/#.UG9XH1Gz5vA 
www.dol.gov/whd/regs/compliance/fairpay/presentation.ppt
http://www.flsa.com/coverage.htm