Exempt Employee

What Is An Exempt Employee?

An exempt employee is a person who is exempt from the Fair Labor Standards Act's (FLSA's) overtime requirements because they are classified as executives, professionals, administrative staff, or outside sales employees and fulfill the requirements for the exemption.

It refers to a group of workers who are not entitled to the Fair Labor Standard Act's minimum wage or overtime protections (FLSA). Exempt employees can perform professional work and are compensated with salaries rather than hourly rates. When exempt workers put in extra or overtime hours, employers can offer an employee benefits package or give year-end bonuses as payment.

Why Is It Important For HR To Learn About Exempt Employees?

The ability to distinguish between exempt and non-exempt employee statuses enables HR management to guarantee that employees are paid in a manner that fairly represents their categorization. Paying individuals in accordance with the law benefits firms in avoiding legal action while also promoting employee fairness. The basis for an engaged, effective workforce is laid by effectively combining exempt and non-exempt employee status laws. This shows individuals that their company takes them seriously.

Types Of Exempt Employees

The following primary categories of exempt employees are recognized by the Fair Labor Standards Act:

• Executive
• Professional
• Administrative
• Computer
• Outside Sales

Executive:

Individuals must have the authority to recruit and dismiss, or their opinions and recommendations as to the hiring, firing, or changing the status of other employees must be given significant weight, and they must have the major responsibility for managing the business or a department or unit of the business. They must also frequently and routinely direct the work of at least two employees.

Professional:

Employees must either specialize in one of a select few other similarly highly specialized fields, such as teaching, computer analytics, or engineering, or have a primary duty of work that necessitates advanced knowledge in a subject of learning or science that is typically learned through extensive, specialized, intellectual instruction and study.

Administrative:

Employees must be required to perform office or other non-manual work that is primarily related to the administration of the employer's overall business operations or the activities of the employer's clients. Their primary responsibilities must also include the use of discretion and independent judgment in significant situations.

Computer:

Employees must have a position as a computer systems analyst, computer programmer, software engineer, or another position in the computer industry requiring skills equivalent to those listed above.

Outside Sales:

Making sales, securing orders, or signing contracts must be an employee's principal responsibility. The job must be done outside of the employer's office or offices.

What Is An Exempt Employee's Minimum Salary Requirement?

Companies are required by the federal Fair Labor Standards Act (FLSA) to pay the majority of their employees at least the federal minimum wage for each hour of work, as well as overtime pay for any hours beyond 40 in a workweek.

Certain employees who hold executive, professional, or administrative positions are exempt from the FLSA's minimum wage and overtime rules (known as "exempt" employees). These workers normally need to meet three requirements in order to be deemed "exempt":

• Salary level test: Employers must provide workers a wage of at least $684 per week beginning on January 1, 2020. In 2022, the FLSA's minimum salary criterion will not change.
• Salary-basis test: Regardless of the quantity or quality of the job performed, the employer is required to pay all employees their full salaries each week, with very few exceptions.
• Duties test: The employee's major responsibilities must fulfill specific requirements.

There is no set minimum salary for the outside sales staff exemption. In order to qualify for the exemption for computer professionals, the employee's pay must be at least $27.63 per hour or at least $684 per week in income.

Many states have their own salary and job requirements to determine if an individual qualifies for an exemption from overtime pay. The state requirements are sometimes more difficult to satisfy than the federal requirements.

How Do Employers Categorize Workers Correctly?

Many companies incorrectly categorize workers based on their job titles or compensation. Most businesses assume they are in compliance with the law if the job contains "manager" or "supervisor" in the title or has previously been paid on a salary basis. However, this is incorrect. When determining compliance, the FLSA does not take employment title or background into account. For an employee to be exempt from overtime compensation, both the duties and salary requirements must be satisfied.

It's important to analyze the work tasks for the position and the proposed or present wage when deciding how to categorize new recruits or existing employees to ensure that every criterion is satisfied.

The employee should be categorized as non-exempt and so be entitled to overtime compensation if even one of the criteria for being exempt from overtime isn't met or is in doubt.

Conclusion

The FLSA's minimum wage and overtime obligations, as well as any applicable state overtime laws, are automatically waived for employees who are categorized as exempt. Exempt workers are compensated with a salary rather than an hourly rate.

Employers should verify that an employee fulfills all requirements for overtime exemption under applicable federal and state regulations before designating and treating the employee as exempt from overtime. Employers should consult with counsel to establish how they should categorize the employee in that specific circumstance if the individual is protected by both federal and state law but fails to fulfill both sets of requirements.