What Does an Exempt Employee Mean?
Setting pay rates and abiding by laws and regulations about pay scales and related money may fall under your purview as an employer. You can choose the finest payment options if you know whether to classify your staff as exempt or nonexempt. This guide will teach the difference between an employee exempt from overtime, minimum pay, and other rules.
The meaning of exempt employee
Under the FLSA, exempt employees are not eligible for overtime pay. The FLSA provides the minimum wage and overtime pay standard, which applies to hourly and salaried employees. However, exempt employees are not entitled to overtime pay, even if they work more than 40 hours in a workweek.
How to determine if an employee should be classified as exempt
An employer must consider the employee’s job duties, salary, and title to determine if an employee should be classified as exempt. The employee must meet certain criteria under the FLSA to be exempt from overtime pay.
Steps for classifying employees as exempt
There are several steps that an employer should follow to classify employees as exempt:
Establish whether they’re salaried or hourly
Under the laws for salaried employees in California, the first step in determining if an employee should be classified as exempt is to determine whether they are paid a salary or an hourly wage. The FLSA requires that exempt employees be paid on a salary basis, meaning they receive a predetermined amount of pay each pay period, regardless of the number of hours they work.
Determine their job position and level of authority
The next step in determining an employee’s exempt status is to determine their position and level of authority. The FLSA recognizes several different exempti
- Executive Exemption. As an executive exemption, an employee must have the primary duty of managing the enterprise or a customarily recognized department or subdivision of the enterprise. The employee must also regularly direct the work of at least two full-time employees and have the authority to hire and fire employees.
- Administrative Exemption. To be classified as exempt under the administrative exemption, an employee performs office or non-manual work directly related to the employer’s management or general business operations. The employee’s work must also involve the exercise of discretion and independent judgment concerning matters of significance.
- Professional Exemption. Workers classified as exempt under the professional exemption perform work requiring advanced knowledge in a field of science or learning acquired by a prolonged course of specialized intellectual instruction. This includes learned professionals, such as doctors, lawyers, and architects, and creative professionals, such as artists, writers, and musicians.
- Outside Sales Exemption. To be classified as exempt under the outside sales exemption, an employee must have the primary duty of making sales or obtaining orders or contracts for services or using facilities. The employee must also regularly work away from the employer’s place of business.
- Computer Employee Exemption. To be classified as exempt under the computer employee exemption, an employee must have the primary duty of performing work in the computer systems analysis or programming field. The employee must also be skilled in systems analysis techniques and procedures, software and hardware design, and the ability to apply that knowledge to job assignments.
- Highly Compensated Employees. A highly compensated employee must earn at least $107,432 per year and have a primary duty of performing office or non-manual work. The employee must also meet the salary and duties tests for one of the other exemptions, such as administrative or professional.
Consider other possible exemptions
An employer should also consider other possible exemptions, such as the highly compensated employee exemption and the administrative exemption.
Confirm state requirements
It is also important to consider state requirements, as some states have wage and hour laws that may be more protective of employees than the FLSA. For example, California laws for salaried employees may differ from the FLSA.
Exempt Employee FAQs: Understanding Your Rights and Obligations
Working as an exempt employee can have advantages, but it is important to understand the laws and regulations that apply to this type of work arrangement. The following are some of the most commonly asked questions about exempt employees and the answers to help you better understand your rights and obligations.
Can I compensate exempt employees for working overtime without paying overtime?
The short answer is no. Exempt employees are not entitled to receive overtime pay, even if they work more than 40 hours weekly. However, an exempt employee can receive compensation for working overtime in the form of paid time off or additional compensation.
Is there a situation where an exempt employee can receive overtime pay?
There are very few situations where an exempt employee is entitled to receive overtime pay. One example is if the exempt employee is paid hourly rather than a salary. In this case, the employee would be eligible for overtime pay for any hours worked over 40 in a week.
Are exempt employees required to work a certain number of hours?
Exempt employees are not required to work a specific number of hours. They are typically paid a salary, a set amount for a period, regardless of the number of hours worked. This means an exempt employee could work fewer or more hours weekly as long as they receive the same salary.
Classifying employees as exempt or non-exempt can be complex, and ensuring that you follow all relevant laws and regulations is important. If you are unsure about the exempt status of your employees or have any questions about the FLSA, it may be in your best interest to consult with a lawyer. An experienced employment lawyer can help you understand your obligations as an employer and can assist you in properly classifying your employees.