Make Certain Salaried Employees Are Exempt From Overtime Payments

The United Stated Department of Labor, Wage & Hour Division, enforces the Fair Labor Standards Act (FLSA), portions of which define which employees are to be paid for overtime in a workweek (working more than 40 hours) and which are exempt from the overtime provisions of FLSA. The employee "types" that are exempt from overtime pay are categorized as executive, administrative, professional, computer, outside sales, and highly compensated employees who are paid on a "salaried basis."

The "salaried basis" test must be met first. Being paid on a "salary basis" means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee's work. An exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked. Furthermore, deductions from pay are permissible only when an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability. Consequently, when you pay someone on a salaried basis, except for extreme circumstances, to maintain their FLSA overtime exemption you must pay them their full salary unless they take time off for strictly personal reasons.

To meet the Executive exemption, all of the following must be met:

  • Salary of at least $913.00/week
  • Primary duty is to manage the business or a major division/department of the business
  • Direct the work of at least two or more full-time employees
  • Have the authority to hire and fire

To meet the Administrative exemption, all of the following must be met:

  • Salary of at least $913.00/week
  • Primary duty is office or non-manual work
  • Employee's primary duties include exercise of discretion and independent judgment on matters of significance

The Professional exemption has two categories: learned professionals and creative professionals.

To meet the learned professional exemption the following must be met:

  • Salary of at least $913.00/week
  • Primary duty is to perform work requiring advanced knowledge-work that is predominantly intellectual requiring the exercise of discretion and judgment (e.g., Accountant)

To meet the creative professional exemption the following must be met:

  • Salary of at least $913.00/week
  • Primary duty is performing work requiring invention, imagination, originality, and "talent" in a recognized field of artistic or creative endeavor

To meet the Computer exemption, all of the following must be met:

  • Salary of at least $913.00/week or paid on a fee basis at a rate of not less than $27.63 per hour
  • Must be a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field performing these duties:
  • Application of system analysis technologies and procedures, including consulting with users to determine hardware, software, or systems functions specifications
  • The design, development, analysis, creation, testing, or modification of computer systems or programs including prototypes, based on user or systems design specifications
  • The design, documentation, testing, creation or modification of computer programs related to machine operating systems, or
  • A combination of the aforementioned duties, the performance of which requires the same level of skill

For the Outside Sales exemption, the following must be met:

  • Primary duty must be to make sales or obtain orders or contracts for services or the use of facilities for which a consideration is paid by the client or customer, and
  • The employee must be customarily and regularly engaged away from the employers place of business

For the Highly Compensated exemption, the employee must perform office or non-manual work and be paid a total annual compensation of $134,004.00 per year or more.

Beginning January 1, 2020, the salary level required for exemption will be automatically updated every three years.  The U.S. Department of Labor, Wage and Hour Division will post the new salary levels 150 days before the effective date.

It is important to make certain the employees you are exempting from overtime payments meet these requirements. If your exemption is ever successfully challenged, you will be liable for back-pay with interest for the entire time that the employee worked for you in a capacity that you deemed was exempt and therefore did not pay overtime for hours worked in excess of forty in a workweek.

(Author's Note: I have been involved in several cases where the "exempt" employee, following termination, filed a complaint with the DOL. One such employee had kept a personal, weekly diary of his time worked for each week and what he did at work over a five-year time period. The DOL initially ruled in the employee's favor {subsequently reversed on appeal} and the company was ordered to pay a huge number of "overtime hours" at time and one-half with interest

To have a bona fide exemption under FLSA, all of the tests for each exemption must be met. Simply paying someone more than $913.00/week does not, in and of itself, protect you from having to pay time and one-half overtime.

If you have any questions or are unsure about the exemption status of one of your employees, contact the U.S. Department of Labor, Wage & Hour Division, and ask for an "opinion letter" on the specific employee's exempt status.