Over the last year, there has been tremendous speculation regarding exempt and nonexempt employees, as employers have anticipated changes in law to reflect the rights of many employees to receive overtime pay. More than 130 million American workers are protected by the Fair Labor Standards Act (FLSA), which is enforced by the Wage and Hour Division of the U.S. Department of Labor. It is estimated that changes in the law could have affected approximately five million employees. For almost a year, there have been delays to the implementation of the new standards while the changes have been debated in court. Since there have been no changes to date, employers are encouraged to review compliancy with the laws that are currently in effect
The Fair Labor Standards Act (FLSA) applies to most organizations that have at least two employees or have an annual volume of business of at least $500,000. Employees of hospitals, businesses that provide medical or nursing care for residents, schools and preschools, or government agencies are also protected under the Fair Labor Standards Act (FLSA). For organizations not covered under those provisions, employees are still protected by the Fair Labor Standards Act (FLSA) if their work regularly involves interstate commerce.
Employers are generally required to pay their nonexempt employees for overtime work. Employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay of at least one and one-half times their regular rate of pay for any hours worked in excess of 40 in a given workweek. A workweek is defined simply as seven consecutive 24-hour periods and may begin on any day of the week and at any hour of the day. Different workweeks may be determined for different employees or departments but workweeks must be consistent and cannot be a moveable timeframe. Employers may not average hours worked beyond a single workweek so, if an employee worked 45-hours in one week, the employer could not have the employee work 35-hours the following week to make up for the extra worked time, even if it is within a normal two-week pay cycle. In that situation, if an employee is covered under the Fair Labor Standards Act (FLSA), that employee must be compensated for five hours of overtime pay on the next regularly occurring pay day.
The Fair Labor Standards Act (FLSA) differentiates between employment classifications for employees who are eligible for overtime pay and employees who are not. The classification “exempt” means that employees are exempt from the ability to earn overtime for any hours worked over their normal 40-hour workweek. An exempt employee is required to be available to work as many hours as it takes to get their job done and is not compensated beyond their normal salary for any extra hours worked.
Employees must meet all of the requirements of the Fair Labor Standards Act (FLSA) to be eligible for exemption. To assist employers as they classify their employees, there are three specific tests that must be applied to every job.
First, there is a salary level test. Most exempt employees must earn at least $455.00 per week, which is the current minimum salary level. Computer professionals may be paid a minimum hourly wage of $27.63, which is the equivalent of the $455.00 weekly salary, and still be considered exempt. Outside sales employees are the only category of exempt employees who are not under a minimum wage requirement, thus not subject to the salary level test.
Second, there is a salary basis test that requires employers to pay employees their full salary in any week that they perform work, regardless of the quantity or quality of the work that is performed. This means that an exempt employee may work for one hour on a particular day but still must be paid their full salary, except in rare situations such as intermittent Family and Medical Leave.
Finally, a primary duties test compares the primary duties of an employee to certain criteria defined by the Fair Labor Standards Act (FLSA). A job title is not enough to be considered exempt under the federal law as job titles vary from organization to organization, so it’s important to look at an employee’s primary duties. Currently, there are six major categories of employees who may be eligible for exemption under the Fair Labor Standards Act (FLSA). Some of the primary duties listed below are tangible and objective, while other primary duties are subjective and must be evaluated closely in comparison with the employee’s primary duties. All must be sufficiently defendable if a Wage and Hour Division investigator were to perform an audit.
Under the administrative exemption, an employee’s primary duties must be performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. Employee’s should also be able to exercise discretion and independent judgement in their primary job duties, which is often difficult to determine.
Under the executive exemption, an employee’s primary duties include managing an organization or a recognized department of a larger organization. They regularly direct the work of two or more employees and have the authority to hire or fire employees, or give recommendations as to the hiring, firing, advancement, promotion, or other status change of employees.
The primary duties of the learned professional requires advanced intellectual knowledge in the field of science or learning that normally has been acquired through a lengthy progression of educational achievements. Their duties must include the consistent exercise of discretion and judgment throughout their work.
The primary duties of a creative professional must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic endeavor.
The computer professional may be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled occupation that performs duties such as the application of systems analysis techniques and procedures, designing, developing, documentation, analysis creation, testing or modification of computer systems or programs, or machine operating systems.
The primary duties of an outside sales employee may be a sale, exchange, contract to sell, consignment for sales, shipment for sales, the transfer of title to tangible property, obtaining contracts for services or other services or products for which a client pays. The outside sales employee is not a person who works daily from 8:00 am to 5:00 pm at their employer’s place of business as their work must regularly be outside of the office, normally visiting clients or potential clients.
There is also an exemption for “highly compensated” employees who are paid a total annual compensation of at least $100,000. These employees are exempt from the Fair Labor Standards Act’s (FLSA’s) overtime requirements if they regularly perform at least one of the exempt duties or responsibilities of an executive, administrative, or professional employee.
Employers covered by the Fair Labor Standards Act (FLSA) must keep and retain records on wages, hours, and other information for each of its covered employees as set forth in the Department of Labor’s (DOL’s) regulations. Although the Fair Labor Standards Act (FLSA) does not mandate any specific reporting requirements, records must be available for an audit at any time.
The Department of Labor enforces compliance of employee classification for overtime purposes through Wage and Hour investigations and may require employers to provide payment of any back wages or overtime due to an employee, as well as a variety of other monetary penalties. Employers may also be required to pay amounts that should have been withheld or paid on the employees’ behalf such as taxes, FICA, FUTA, benefit contributions or the value of lost benefits. Changes in employment practices may be recommended including the removal of exemption status for all employees in a same job category in which a violation occurred. Employers who willfully or repeatedly violate Fair Labor Standards Act (FLSA) requirements are subject to civil money penalties for each individual violation and a second conviction of a violation may result in imprisonment.
Employers should keep in mind that the purpose of the Fair Labor Standards Act (FLSA) is to ensure that employees are compensated fairly and adequately, and that nonexempt employees who may receive less pay and be subject to work more hours receive overtime pay for hours beyond their normal work day. There is no law that states that employees who would typically qualify for an exempt status may not be paid on an hourly basis and receive compensation for overtime work if an employer chooses to honor their employees with that extra compensation. One of the primary objectives of the Fair Labor Standards Act (FLSA) is valuing work contributions by employees by ensuring that those who work overtime receive just compensation for it.
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Written by: Kathi A. Walker