Employees generally qualify for exemption from overtime pay requirements under federal and state labor laws when they meet specific criteria related to their salary, salary level, and primary job duties.
Understanding Employee Exemption Qualifications
When discussing "exemption" in the context of employment, it typically refers to an employee's status as exempt from certain provisions of the Fair Labor Standards Act (FLSA), particularly the requirement to pay overtime for hours worked over 40 in a workweek. The most common types of exemptions are the "white-collar" exemptions, which include executive, administrative, and professional roles. To qualify for these exemptions, employees must satisfy a three-part test.
Key Requirements for Exemption
For an employee to qualify for an executive, administrative, or professional exemption status, they must satisfy all three of the following conditions:
| Requirement | Description |
|---|---|
| Salary Basis Test | The employee must receive a predetermined, fixed salary that is not subject to reduction because of variations in the quality or quantity of the work performed. This means they generally receive their full salary for any week in which they perform any work, without regard to the number of days or hours worked. There are limited exceptions for legitimate deductions, such as for absences for personal reasons, sickness, or disability. |
| Salary Level Test | The employee's salary must meet or exceed a specific minimum weekly amount set by federal regulations (and sometimes higher state regulations). This threshold is updated periodically to reflect changes in wages and economic conditions. |
| Duties Test | The employee's primary job duties must fall into specific categories defined by the FLSA, classifying them as genuinely executive, administrative, or professional in nature. This is often the most complex part of determining exemption status, as it focuses on the actual work performed, not just the job title. |
Delving Deeper into Duty Requirements
The duties test ensures that only employees performing high-level responsibilities qualify for exemption. Here's a closer look at the primary duties typically associated with each white-collar exemption:
Executive Exemption
To qualify for the executive exemption, an employee's primary duty must involve:
- Managing the enterprise in which the employee is employed or a customarily recognized department or subdivision thereof.
- Customarily and regularly directing the work of two or more other employees.
- Having the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight.
Administrative Exemption
For the administrative exemption, the employee's primary duty must be:
- The performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
- Exercising discretion and independent judgment with respect to matters of significance. This involves the authority to make independent choices, free from immediate supervision, on matters that are important to the business.
Professional Exemption
The professional exemption is divided into two categories:
- Learned Professionals: The primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction (e.g., doctors, lawyers, engineers, teachers).
- Creative Professionals: The primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic endeavor (e.g., writers, musicians, actors).
Importance of Meeting All Criteria
It is crucial for an employee to meet all three tests—salary basis, salary level, and duties—to be considered exempt. Failing to meet even one of these criteria means the employee is generally non-exempt and, therefore, entitled to overtime pay for all hours worked over 40 in a workweek, regardless of their job title or how they are paid. Misclassifying employees can lead to significant legal and financial consequences for employers.
