Glossary of Human Resources Management and Employee Benefit Terms
The FLSA is a federal law that was enacted to protect the rights of employees in regards to fair pay practices. This established protections like minimum wage and overtime pay. Under the FLSA, each employee is either non-exempt or exempt from overtime pay.
For an employee to be classified as exempt, their position must meet one of five duties test categories:
Excluding outside sales, each category of exemption requires the employee to be compensated with a salary of at least $684 per week (based on current figures as of 2020). For exemption in the computer category, compensation with an hourly rate of $27.63 is also acceptable. Each exemption category also requires the employee to be involved in specific job duties.
It’s a common misconception that an employee may be exempt if they meet the salary requirements alone. This is not the case—salaried employees are still not necessarily exempt from overtime benefits if they do not meet the job duties requirements.
Exempt job duties will vary depending on the kind of exemption an employee qualifies for. The following are the job duties associated with each of the five categories above:
Administrative: The employee’s primary duty must involve managing part of the company’s business operations. Their duties must require a level of discretion and independent judgment.
Computer: They must be employed as a computer systems analyst, computer programmer, software engineer, or in a role that requires similar skills. Their primary responsibilities must include the application and/or design of computer programs or related systems.
Executive: Their primary duty must involve managing the company or a recognized department and regularly direct at least two or more other full-time employees. They must also have the ability to hire, fire, and offer advancement opportunities to staff.
Outside Sales: The employee’s primary duty must involve making sales or obtaining orders for services paid by a client or customer. Their time must be primarily and regularly engaged away from the employer’s place of business.
Professional: A professional’s job duties must require advanced knowledge in work that is intellectual in character. The advanced knowledge must be in the field of science and learning and must have been acquired from a specialized course.
Highly compensated employees may be exempt if they regularly perform at least one of the duties described in the executive, professional, or administrative categories.
These FLSA exemptions only apply to white-collar employees who meet the salary requirements. Manual laborers and blue-collar workers who perform repetitive tasks involving physical skills do not qualify for exemption.
Exemptions also do not apply to police, firefighters, paramedics, first responders, and other related roles.
Some states do have their own exemption requirements. If the state exemption requirements contradict the FLSA duties test, employers must go with the option that better favors the employee (which in most cases means following the state’s exemption rules).
Two common duties test errors involve the misclassification of employees and improper compensation. Employers can avoid these common duties test errors by carefully following the guidelines listed in the FLSA.
Conduct a thorough audit of each employee’s payroll status to ensure they are properly classified as either exempt or non-exempt. It’s a good idea to repeat this process every year or anytime the FLSA is updated.