To be or not to be exempt from overtime pay under the Fair Labor Standards Act (FLSA)? That is the big question, according to Sandra Hoyle-Smith, a Texas-based human resources expert and employment law mediator.
Hoyle-Smith notes that many employers do not calculate overtime correctly and in some cases have wrongly classified employees as being exempt from overtime pay when they should be classified as nonexempt.
Some background
Signed into law on June 25, 1938 by President Franklin D. Roosevelt, the FLSA banned oppressive child labor, mandated a minimum hourly wage of 25 cents and set out a maximum workweek of 44 hours.
Today, the FLSA establishes a minimum wage of $7.25 per hour, overtime pay, recordkeeping, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments. It mandates overtime pay for hours worked over 40 hours at a rate of not less than 1.5 times the regular hourly rate of pay.
Determining who is covered and who is exempt
“Who is covered? Typically it’s your enterprises with at least two or more employees. It is those that have at least $500,000 a year in business and engage in interstate commerce,” says Hoyle-Smith, adding that nearly all employers today are covered under the FLSA.
However, many employees are exempt from receiving overtime pay. Those workers are paid a salary.
In order to classify a worker as exempt, you need to follow certain conditions and one of those is the Duties Test. Hoyle-Smith says the exemptions that would apply to many professional offices are executive, administrative, and professional positions, along with outside sales representatives and certain computer-related positions.
Those employees who do not fall under one of the above exemptions are considered nonexempt and are eligible for overtime pay for all hours worked beyond 40 hours in a workweek.
To qualify for exempt status, you must satisfy the following conditions, according to Hoyle-Smith.
- The Salary Basis Test: An employer must pay an exempt employee his or her full salary (at a rate of not less than $455 per week) in any week in which the worker performs work.
- The Duties Test: Workers must perform certain exempt job duties in executive, professional, creative or certain computer-related positions.
To qualify for an executive employee exemption, the executive must be paid a salary of at least $455 per week. His or her primary duties must include the management of the enterprise or a recognized department or subdivision.
The employee must have the ability to hire or fire other employees, or their suggestions and recommendations as to hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.
“They typically have to manage at least two or more individuals and they have to spend at least 50 percent of their time on performing exempt-level duties. At that point, then they are exempt from overtime pay,” she says.
In an administrative exemption, the worker must be paid a salary of at least $455 weekly. His or her primary duty must be the performance of office or other non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and the employee’s primary duties must include the exercise of discretion and independent judgment with respect to matters of significance.
A professional employee exemption carries the same minimum salary requirement. The employee’s primary duty must be the performance of work requiring advanced knowledge and education in science or learning, defined as work that is primarily intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.
A creative professional employee exemption has the same minimum salary requirement and the employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.
The computer employee exemption again has the same minimum salary requirement as the other categories listed above. The employee must be employed as either a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field.
The outside sales exemption requires that the employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer. The employee must be customarily and regularly engaged away from the employer’s place or places of business.
The importance of job descriptions
Hoyle-Smith stresses the importance of ensuring that all job descriptions are kept current and are a true reflection of the job duties involved. For exempt positions, you must ensure that job descriptions justify the exempt status.
She suggests that for your nonexempt employees, the need for paying overtime can be reduced or eliminated by reorganizing their workloads or adjusting their schedules.
Do not rely on job titles
Job titles never determine exempt status under the FLSA. For example, people are sometimes given the title of manager when they are not actually managing other employees.
Review your policies
You should also review your overtime policy to ensure that employees receive preapproval to work overtime before they put in overtime hours.
Hoyle-Smith also recommends reviewing or creating a working-from-home and/or mobile device policy in order to prevent nonexempt employees from working overtime or off-the-clock.
Better safe than sorry
“If you are ever in doubt (as to whether employees should be exempt or nonexempt), you’ll always want to make them nonexempt,” says Hoyle-Smith. “It is never wrong to pay an employee overtime pay even if they are technically exempt under the salary and the duties test. However, it is wrong or basically illegal to not pay a nonexempt employee overtime.”
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