Last year, the US Department of Labor (DOL) collected $234 million in back wages for employees that it determined were not paid in accordance with the Fair Labor Standards Act (FLSA).
That law, as well as the laws of most—if not all—states, classifies employees as either “exempt” or “nonexempt” from minimum wage and overtime provisions.
Nonexempt employees are entitled to minimum wage, as well as overtime pay at a rate of 1½ times the employee’s regular rate of pay for all hours worked beyond 40 hours in a workweek. These requirements do not apply to exempt employees.
Because of this, employers may be tempted to intentionally misclassify employees as exempt. Other employers simply do not understand the applicable laws. Either way, misclassification of employees can mean headaches and expenses for employers.
An employer who misclassifies an employee may face lawsuits from employees for unpaid wages, interest, and reimbursement of their attorney fees, as well as civil penalties. In some cases, criminal penalties—including prison time—may be imposed.
Further, once the DOL or its state equivalent becomes aware of the issue, it may audit the employer to determine whether it is failing to comply with other employment laws as well.
Requirements for Exemption
One common mistake is classifying all “salaried” employees as exempt. While, with few exceptions, to be exempt, an employee must be paid on a salary basis, this is not the only requirement.
An exempt employee must also be paid at least $35,568 annually ($684 per week) and perform specified exempt job duties.
Exempt Duties
There are three typical categories of exempt job duties, called “executive,” “professional,” and “administrative.” For any of these exemptions to apply, the employee’s “primary duty” must be the performance of exempt job duties.
Executive Exemption
To qualify as exempt for the performance of executive duties, the employee generally must:
(a) spend more than 50% of working time performing management tasks;
(b) supervise at least two full-time employees (or the equivalent part-time employees; e.g., four half-time employees);
(c) have either full hiring or firing authority or at least have his/her recommendations given particular weight; and
(d) customarily and regularly exercise authority to make decisions of significance.
Professional Exemption
Professionally exempt work means work which is predominantly intellectual, requires specialized education, and involves the exercise of discretion and judgment.
The job duties of the traditional “learned professions,” including lawyers, doctors, dentists, teachers, architects, and clergy, are exempt.
Another type of professional exemption is that of creative professionals such as actors, musicians, composers, writers, cartoonists, and some journalists.
To qualify for this exemption, the person’s primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
This exemption does not apply to work that can be produced by a person with general manual or intellectual ability and training.
Administrative Exemption
This exemption is for a group of management employees who don’t necessarily supervise other employees, but who do perform responsible management duties within the organization.
Such a person must perform office or non-manual work directly related to management policies or general business operations of the employee’s employer or the employer’s customers. Neither production nor sales work qualifies.
This exemption is limited to duties directly related to the running of a business and not merely carrying out day-to-day affairs, and the worker must customarily and regularly exercise independent judgment and discretion about matters of significance.
Other Exemptions
There are a few other exemptions. One is the computer exemption that applies, in certain situations, to computer systems analysts, computer programmers, software engineers, and other similarly skilled workers.
Another is the outside sales exemption, which requires, among other things, that the sales employee be customarily and regularly engaged away from the employer’s place(s) of business.
Highly compensated employees performing office or non-manual work and paid total annual compensation of $107,432 or more may be exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee.
Finally, certain jobs are completely excluded from coverage under the FLSA overtime rules. Some jobs are excluded in the statute itself, for example, some agricultural workers, while some jobs are governed by another specific federal labor law, such as the Railway Labor Act or the Motor Carriers Act.
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Whether you are an employee or an employer, please feel free to contact us if you have any questions about worker classification or any other employment-law issues.
For more information about employment law, see Employment Law (in Plain English)®, co-authored by members of this law firm. The book is available through Skyhorse Publishing, Amazon, Barnes & Noble, Powell’s Books, and Bookshop (an online bookstore that allows you to support your favorite independently owned bookstore).
Photo by Sebastian Herrmann on Unsplash
