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Distinguishing Between Exempt and Non-Exempt Employment Classification

written by: N. Plowman•edited by: Michele McDonough•updated: 1/22/2010

Understanding FLSA exemptions can be quite cumbersome and frustrating. Fortunately, this article explains exemption requirements in plain language to help employees and employers alike determine whether or not someone is exempt from FLSA minimum wage and overtime requirements.

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    What is the Fair Labor Standards Act?

    The Fair Labor Standards Act (FLSA) is a federal law that governs minimum wage and overtime payment requirements, among other employee-favorable stipulations. Many business owners believe an employee’s classification is simple: non-exempt if paid hourly and exempt if paid salary. However, this mentality is incorrect and can result in hefty fines and penalties for misclassification as well as back pay for valid overtime claims.

    The FLSA, one of the top employment laws, requires that all non-exempt employees be paid at least the federal minimum wage for the first forty hours worked in a single work week, and, for all hours worked in excess of forty per week, the employee must be paid a rate of one-and-a-half times the employee’s regular hourly rate. Generally speaking, an exempt employee is entitled to his or her full salary as long as some work is performed each day throughout the week or when the employee is available and willing to work, even if no work is available.

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    Determining an Employee’s FLSA Classification

    Determining whether an employee is exempt from FLSA minimum wage and overtime laws is more complicated than most business owners would like. Therefore, the goal of this article is to explain the different types of exemptions under the Fair Labor Standards Act and identify how to determine whether an employee falls under one of these exemptions.

    Probably the most important thing to know about FLSA exemptions is that an employee’s classification is not determined solely by job title or method of compensation. Instead, an employee’s FLSA status is determined partially on compensation method and pay rate, but more so according to an employee’s primary job responsibilities and duties.

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    Types of Exemptions

    Executive According to the Department of Labor’s Fair Labor Standards Act, there are seven recognized exemptions. The most common exemptions include executive, learned professional, creative professional, and the highly compensated employee exemption. These four exemptions are more straightforward and readily recognizable in the workplace. However, the remaining three exemptions can be somewhat tricky and not as easily observable, which include the administrative, computer employee, and outside sales exemptions.

    The only exceptions to these exemption categories pertain to blue collar workers, law enforcement officials, and first responders. Those employees in fields such as production, maintenance, construction, and similar manual labor occupations are always considered non-exempt regardless of compensation method or amount. Furthermore, those employees that work as a police officer, fire fighter, paramedic, detective, highway patrol, trooper, correctional officer, or other similarly-named law enforcement or emergency personnel are never exempt from FLSA rules.

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    Tests of Exemption

    There are three tests to determine whether an employee should be classified as exempt or non-exempt – compensation method, compensation level, and job duties. These three tests are not error-proof, so if any uncertainty exists or questions arise, it is highly recommended to consult the federal Department of Labor website or an individual state’s Wage and Hour website. It is usually a good idea anyways to consult both websites because some states have stricter stipulations regarding exemption classification, which supersede FLSA requirements.

    First, to be exempt, an employee must be compensated on a salary, fee, or hourly basis, unless the employee performs outside sales, in which the compensation method is not relevant. Second, an employee must be compensated at least $455 per week (or $27.63 per hour if the employee is a computer software professional). And third, an employee’s primary job responsibilities and duties must be professional and/or managerial in nature or require exercising discretion or judgment in matters of importance.

    To assist in the determination process, a document has been developed that provides a decision flowchart to help employers identify what type of exemption, if any, an employee falls under. This document, entitled Exempt or Non-Exempt Flowchart, is available for download in the Entrepreneurship Media Gallery. To use this reference guide, one must start in the upper-left corner and follow the path that best meets the employee’s employment situation.