What is an Exempt Employee?
An exempt employee is an individual who is exempt from overtime pay. Exempt job duties are relatively high-level work. They are classified into three different types of duties: executive, professional, or administrative.
Executive. The employee must be responsible for supervising at least two other full-time employees, or the equivalent of part-time employees. They must be employees, not volunteers or interns. The primary duty of the job must be management. Management duties include interviewing and training new employees, maintaining records, handling employee grievances, planning work for their department, delegating work, budget plans, and other managerial tasks. You must give them some input into job status decisions, such as hiring, firing, promotions, or assignments.
Professional. The job duties of the traditional “learned professionals” are exempt. These include lawyers, doctors, dentists, teachers, architects, registered nurses, accountants, engineers, actuaries, pharmacists, and clergy. Professionally exempt employees must have education beyond high school, and usually beyond a college degree, in fields that are distinguished from the mechanical arts or skilled trades.
Administrative. This is the most difficult to define. The FLSA defines exempt administrative job duties as:
office or nonmanual work, which is
directly related to management or general business operations of the employer or the employer’s customers, and
a primary component of which involves the exercise of independent judgment and discretion about
matters of significance.
This exemption is for employees who:
“keep the business running.”
exercise discretion and independent judgment in their job.
provide support to the operational or production employees.
are considered “staff” rather than “line” employees.
are not clerical or secretarial positions.
must be allowed to make important decisions as a regular part of their job.
Some examples of exempt functional areas include “tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network; internet and database administration; legal and regulatory compliance; and similar activities.” See Department of Labor Fact Sheet 17C.
If an employee is classified as an “exempt” employee, you don’t have to pay them overtime for hours worked above 40 hours. To be classified as an exempt employee you must pay them a salary of at least $684 a week ($35,568 a year) or an hourly rate of $27.63 or more, and they must perform exempt job duties. To meet the salary basis requirement, you must guarantee your employee the minimum salary ($684 a week) for any workweek they do any work for you. You do not need to pay your exempt employees during any week they do not do any work for you. An exception to this would be paid vacation you provide as an employee benefit.
Even if you give an employee a title that sounds managerial or supervisory, the actual duties the employee performs are what determine whether the employee is an exempt employee. As with many legal mistakes, improperly classifying your employees as exempt can cost you money in unpaid overtime, possible fines, and legal fees. The Department of Labor website has several good resources to assist you in making the proper determination.
Meet with us to make sure you are properly classifying your employees.