Understanding The Salary Exempt Law: A Guide To Application

The Fair Labor Standards Act (FLSA) outlines the differences between exempt and non-exempt employees, with the former being paid a salary above a certain level and working in an administrative, professional, executive, computer or outside sales role, and the latter typically being paid an hourly wage or earning a lower salary. While exempt employees are not entitled to overtime pay, non-exempt employees are, and employers must correctly classify their employees to avoid costly compliance violations. To qualify for exemption, employees must generally meet certain tests regarding their job duties and be paid on a salary basis at not less than $684 per week. However, it's important to note that job titles do not determine exempt status, and employees' specific job duties and salaries must meet all the requirements of the Department's regulations.

Salary basis requirements

Salary Basis Definition

Being paid on a "salary basis" means that an employee regularly receives a predetermined amount of compensation for each pay period, typically on a weekly basis or less frequently. This predetermined amount cannot be reduced due to variations in the quality or quantity of the employee's work. In other words, an exempt employee must receive their full salary for any week they perform work, regardless of the number of days or hours worked. However, employers are not required to pay the employee for any workweek in which they perform no work.

Permissible Deductions from Salary

While employers must generally pay the full salary, there are specific circumstances under which deductions from an exempt employee's pay are permissible. These include:

• Absences of one or more full days for personal reasons or sickness/disability, following the employer's policies or practices.
• Offsetting amounts received as jury or witness fees, or military pay.
• Penalties imposed in good faith for serious infractions of safety rules.
• Unpaid disciplinary suspensions of one or more full days imposed in good faith.
• The initial or terminal week of employment, where the employee may not work a full week.
• Weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.

Nondiscretionary Bonuses and Incentives

Employers have some flexibility in using nondiscretionary bonuses and incentive payments, such as commissions, to satisfy up to 10% of the standard salary level. Additionally, if the employer has not met their financial obligation after a 52-week period, they can make a "catch-up" payment within one pay period to bring the employee's compensation up to the required level.

Fee Basis Payments

Administrative, professional, and computer employees may be paid on a "fee basis" instead of a salary basis. This means they receive an agreed-upon sum for a single job, regardless of the time required for completion. To determine if this meets the minimum salary level requirement, the payment must be equivalent to at least $684 per week if the employee worked 40 hours.

Job duties

To apply the salary exempt law, it is important to understand the difference between exempt and non-exempt employees. Exempt employees are generally those who are paid a salary and perform specific job duties that are exempt from overtime rules under the Fair Labor Standards Act (FLSA). On the other hand, non-exempt employees are typically entitled to overtime pay and are paid based on the number of hours worked.

Executive Exemption:

• Supervision: The employee must regularly supervise two or more other employees. The supervision must be a substantial and ongoing part of their job duties.
• Management: The employee's primary duty should be managing the enterprise or a department within it. They should be "in charge" and have decision-making authority.
• Personnel Decisions: The employee should have genuine input into personnel matters, such as hiring, firing, promotions, or assignments. Their suggestions and recommendations should carry weight in these decisions.

Administrative Exemption:

• Office or Non-Manual Work: The employee's primary duty should be performing office work or non-manual labour directly related to the management or general business operations of the employer or the employer's customers.
• Independent Judgment and Discretion: The employee must exercise independent judgment and discretion in their work, particularly regarding matters of significance.
• Support Functions: Administrative employees typically provide support to operational or production employees. They are often involved in functions like human resources, payroll, finance, marketing, legal compliance, and computer-related tasks.

Professional Exemption:

• Advanced Knowledge: The employee's primary duty should involve work requiring advanced knowledge in a field of science or learning. This includes professions such as law, medicine, accounting, engineering, architecture, and teaching.
• Intellectual Work: The work should be predominantly intellectual in character, requiring specialized education and the consistent exercise of discretion and judgment.
• Prolonged Instruction: The advanced knowledge must usually be acquired through a prolonged course of specialized intellectual instruction, such as a university degree or equivalent.

Computer Employee Exemption:

• Salary or Fee Basis: The employee must be compensated either on a salary or fee basis, meeting specific hourly or yearly salary requirements.
• Specific Duties: The employee's primary duty should involve systems analysis, software design, or other skilled work in the computer field. This includes consulting with users, determining hardware and software specifications, designing and testing computer systems, and creating or modifying programs.

Outside Sales Exemption:

• Primary Duty: The employee's main responsibility should be making sales or obtaining orders for services or facilities for which the client will pay.
• Away from the Workplace: They should be regularly engaged in this sales work away from the employer's place of business.

It is important to note that job titles do not determine exemption status. The specific job duties and salary requirements outlined by the Department of Labor must be met for an employee to be considered exempt.

State and local laws

Some states have enacted laws that require employers to pay higher salaries than the federal minimum for employees to be exempt from overtime pay. For example, New York City and Nassau, Suffolk, and Westchester Counties in New York have set a higher salary threshold than the federal rule. Additionally, California has industry-specific salary thresholds for exempt employees in the healthcare and fast-food industries and for computer software employees.

On the other hand, some states explicitly adopt the FLSA and Department of Labor (DOL) regulations regarding overtime exemptions, requiring employers to meet only the federal standards. There are also states that do not have their own overtime and minimum wage laws, so the FLSA and DOL regulations are the only applicable requirements.

It's important to note that the FLSA provides minimum standards, and employers must comply with any federal, state, or municipal laws that establish higher minimum wages or more favourable conditions for employees. The FLSA's protections cannot be waived or reduced, and collective bargaining agreements cannot override these protections.

When determining exemption status, it's crucial to consider both the salary and the job duties of the employee. Job titles do not determine exempt status; instead, the specific job tasks and how they fit into the employer's overall operations are evaluated. The three main categories of exempt job duties are "executive," "professional," and "administrative."

In conclusion, when applying the salary exempt law, employers must be mindful of the varying state and local laws that may impose higher salary thresholds or different exemption criteria. These laws can be more beneficial to employees, and employers must comply with the standards that offer the greatest advantages to their workers.

Employee classification

Exempt employees are generally those who hold "white-collar" positions and meet specific criteria regarding their job duties and salary. These employees are exempt from minimum wage and overtime pay requirements. To be classified as exempt, employees must typically earn a salary of at least $684 per week and perform specific job duties outlined by the Department of Labor's regulations. The job duties fall into three main categories: executive, professional, and administrative.

Executive job duties are exempt when an employee regularly supervises two or more other employees, has management as their primary duty, and has input into personnel decisions such as hiring, firing, or promotions.

Professional job duties are exempt when an employee performs work requiring advanced knowledge in a field of science or learning, predominantly intellectual in nature, and customarily acquired through specialized intellectual instruction. This includes traditional "learned professions" such as lawyers, doctors, and teachers.

Administrative job duties are exempt when an employee performs non-manual work directly related to management or general business operations, and their work involves the exercise of independent judgment and discretion about matters of significance. This classification typically applies to high-level employees who are responsible for keeping the business running.

It is important to note that job titles do not determine exempt status. Instead, the specific job duties and salary of an employee must meet the requirements outlined by the Department of Labor.

On the other hand, non-exempt employees are entitled to overtime pay and minimum wage protections under the FLSA. This classification typically includes manual laborers, blue-collar workers, and non-management employees in production, maintenance, and similar occupations.

Salary level

To be considered exempt, employees must generally earn a minimum salary of $684 per week ($35,568 annually), paid on a salary basis. This means receiving a predetermined amount of compensation each pay period, which cannot be reduced due to variations in the quality or quantity of work performed. This salary threshold is set to increase to $844 per week ($43,888 annually) from July 1, 2024, and $1,128 per week ($58,656 annually) from January 1, 2025.

It is important to note that these salary requirements do not apply to all professions. For instance, outside sales employees, teachers, and employees practicing law or medicine are exempt from the salary basis requirements. Additionally, computer employees have the option to be paid on an hourly basis, earning a minimum of $27.63 per hour.

Furthermore, employers can use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the standard salary level. This provides some flexibility in how employers structure their compensation packages while still ensuring employees receive a substantial portion of their income through a fixed salary.

The salary level for exemption from FLSA minimum wage and overtime protections is subject to periodic revisions, with the next increase scheduled for July 1, 2024. These updates ensure that the salary thresholds remain relevant and reflect current earnings data.

In summary, the salary level requirements for exemption are an essential aspect of the FLSA regulations, providing a clear monetary threshold for employees to be considered exempt from minimum wage and overtime pay protections.

Frequently asked questions