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Are You Exempt?

Most people think that just because they are paid a salary, they are exempt and not entitled to overtime.  This is not true.  Being paid a salary is NOT the same as being exempt.

For overtime purposes, employees are either "exempt" or "nonexempt."  Nonexempt employees are entitled to overtime pay. Exempt employees are not.

Generally, whether you are "exempt" or "nonexempt" depends on two broad criteria.  To be "exempt," both of the following criteria must be met:

1. The employee must be paid a salary or fee (not hourly),
2. The employee must perform the duties of an exempt employee.

An employee who is paid on an hourly basis is "nonexempt" no matter what kind of work s/he does (except for doctors, lawyers, and teachers).  At present, the current minimum salary to be an exempt employee is $455 per week.  However, being paid a salary is not the same as being exempt.

An employee who is paid a salary is still "nonexempt" unless s/he also performs exempt job duties.

These duties generally fall into three categories:

What Are Exempt Job Duties?

A employee is exempt only if he or she also performs exempt job duties. This is sometimes called the "duties test." The exemption from overtime is limited to employees who perform relatively high-level work involving a good deal of judgment and discretion. Whether the duties of a particular job or category of job qualifies as exempt depends on the nature of the particular duties. Job titles or position descriptions are of limited usefulness in this determination.  (A secretary is still a secretary even if s/he is called an "executive assistant").  It is the actual job tasks that must be evaluated (along with where and how the particular job tasks "fit" into the employer's overall operations). There are three typical categories of exempt job duties, called "executive," " administrative," and "professional."


What Are Exempt Job Duties - Executive

Job duties are exempt executive job duties if the employee:

(a) has the authority to hire and fire (or make recommendations about hiring, firing, or changes in job status which are given particular weight)
(b) regularly supervises two or more other full-time employees, and also
(c) is, as a practical matter, managing or "in charge" of a unit or subunit of the organization when on duty.

The supervision must be a regular, normal part of the job, and must be of two or more full-time employees (or enough part-timers to be the equivalent of two full-time employees). In addition, the employee must be "in charge" of a unit or subunit of the organization, such as a "department" or a "shift." This means that the employee is, as a practical matter, "the boss" of the unit or subunit when on duty.

Generally, only one person is in charge of a unit or subunit at any particular time. Thus, if an "assistant manager" is never on duty alone, but a "manager" is always on duty at the same time, then only the "manager" is in charge and the "assistant manager" is not. For this reason, a number of assistant managers are not exempt employees and should be paid for the overtime they work.

An employee who holds a fancy title implying that he or she is "the boss" but who does not in fact supervise two or more employees or who is not really "in charge" when on duty is not performing executive job duties. Thus, for example, a "manager" who does a purely production job but has a "manager" title is not performing executive job duties.

If you feel that you have been misclassified as an exempt executive employee and would like to discuss the matter with an attorney, please contact us or fill out our questionnaire and we will call you.

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What Are Exempt Job Duties - Adminstrative

The most difficult of the exempt job classifications is the administrative exemption. Employees are performing exempt administrative job duties if they do

(a) nonmanual or office work which
(b) "supports" the overall business operations of the employer, and which
(c) involves exercising independent judgment and discretion on important matters.

Exempt administrative work is limited to support or "staff" jobs, as distinguished from "production" or "operations" or "line" jobs. Administrative employees are engaged in work related to company policy or the general operations of the employer, as distinguished from work related to "producing" what the employer "sells." For example, employees involved in preparing a company's payroll are performing administrative work (but not necessarily exempt work), while employees involved in manufacturing products sold to customers are not.

To be exempt, the work must be at a relatively high-level, involve a good deal of judgment and discretion, and be important to the overall operation of the enterprise. An example of administratively exempt work could be the buyer for a department store. He or she performs nonmanual or office work and is not engaged in production or sales. The job involves work which is necessary to the overall operation of the store - selecting merchandize to be ordered as inventory. It is important work, since having the right inventory (and the right amount of inventory) is crucial to the overall well-being of the store's business. It involves the exercise of a good deal of important judgment and discretion, since it is up to the buyer to select items which will sell in sufficient quantity and at sufficient margins to be profitable. Other examples of administratively exempt employees might be planners and true administrative assistants (as differentiated from secretaries with fancy titles). Bookkeepers, many "executive secretaries," loan officers, and most employees who operate machines or devices are not administratively exempt employees.

Merely clerical work may be administrative, but it is not exempt. Most secretaries, for example, may accurately be said to be performing administrative work, but their jobs are not usually exempt. Similarly, filing, filling out forms and preparing routine reports, answering telephones, making travel arrangements, working on customer "help desks," and similar jobs are not likely to be high-level enough to be administratively exempt. Some primarily clerical workers do in fact exercise some discretion and judgment in their jobs. However, to "count" the exercise of judgment and discretion must be about matters of considerable importance to the operation of the enterprise as a whole. Routinely ordering supplies (and even selecting which vendor to buy paper clips from) is not likely to be considered high-level enough to qualify the employee for administratively exempt status. Some "secretaries" may indeed be high-level, administratively exempt employees (if they are paid on a salary basis), while some employees with fancy titles (e.g., "administrative assistant") may really be performing nonexempt clerical duties. Each job must be evaluated on a position-by-position and company-by-company basis.

If you feel that you have been misclassified as an exempt administrative employee and would like to discuss the matter with an attorney, please contact us or fill out our questionnaire and we will call you.

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What Are Exempt Job Duties - Professional

This exemption includes doctors, lawyers, and teachers. Employees are performing exempt professional job duties if their work involves the application of advanced, usually specialized, learning or credentials of the type commonly associated with the "traditional learned professions" such as medicine, law, accounting or engineering. Typically, but not necessarily, a professionally exempt employee will hold a specialized academic degree in the field, and professionally exempt job duties imply that the employee exercises a good deal of judgment and discretion in performing the work. The FLSA distinguishes the exercise of judgment and discretion from the application of particular skills, even high-level skills. A lumber grader, for example, may be highly trained in distinguishing subtle variations in wood but is not performing professionally exempt job duties.

On the other hand, the professional exemption is not limited to the traditional learned professions. A "real" computer programmer, for example, is performing exempt professional job duties. Of course, to be professionally exempt even a traditionally credentialed employee must actually "practice" the profession for which s/he is qualified. An engineer doing real engineering work is performing professionally exempt job duties, but an engineer working as a technician is not. An accountant doing accounting is performing professionally exempt work, but a CPA whose job is really bookkeeping is not.

The increasing use of computers in business has generated some "special rules" in the FLSA defining "computer professionals." "Real" programmers, systems analysts, and systems engineers are considered to be performing professional job duties. However, employees are not performing professional job duties merely because they may happen to work with computers. Jobs such as computer installation or troubleshooting computer problems are not typically professionally exempt (although employees in these jobs may be exempt as executives or administrators if their actual job duties fit within those definitions). As noted above, computer professionals are exempt if they are paid on a salary basis, or hourly at a rate of at least $27.63.

If you feel that you have been misclassified as an exempt employee and would like to discuss the matter with an attorney, please contact us or fill out our questionnaire and we will call you.

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What Does it Mean to Be Paid on a "Salary Basis?"

Getting paid a "salary" generally means getting the same amount of pay each week or each pay period no matter how many hours an employee works that week. For example, an employee on salary gets paid the same if he or she works 10, 30, 39, 40, or 46 hours per week (or any other number of hours).

With a few exceptions, a salaried employee cannot have his/her salary reduced based on the "quality or quantity" of work performed. For example, if an employee gets a salary of $400 per week when he or she works 40 hours, an employer cannot pay the employee $350 when s/he works 35 hours (effectively paying the employee $10/hour rather than a salary of $400 per week).

An employer who makes improper deductions to an employee's salary may destroy the "salary basis" of pay and may make the employee nonexempt and entitled to overtime.

An employee is not paid on a salary basis if his/her salary is "subject to" reduction for reasons inconsistent with the salary basis of pay. Thus, if an employer actually does dock employee salaries, or if there is a specific employment policy requiring reductions in salaries in specified situations, the employer may destroy the salary basis of pay.

Whether an employee is paid on a salary basis is not affected by whether pay is expressed in hourly terms (as this is fairly common in many payroll computer programs), but whether the employee is in fact paid a "guaranteed minimum" amount that is not subject to being docked based on the quality or quantity of work performed.

The salary basis pay requirement for exempt status does not apply to some of the "learned professions," such as lawyers, doctors, or school teachers. These jobs are exempt even if the employees are paid hourly. Another exception is for "computer professionals" (as defined under the law), who may be exempt if they are paid on a salary basis or if they are paid hourly at a rate of at least $27.63. Further, the FLSA also allows some exempt employees to be paid on a fee basis, but this is a fairly rare circumstance.

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