This is the second article of three that will focus on the Fair Labor Standards Act (FLSA) and the requirements of employers. While the first article focused on which employers and employees are required to comply with in accordance with the regulations of the FLSA. The second article will focus on the exemption classifications and how to determine if employees are exempt from overtime laws. The third article will focus on how public agencies are different when it comes the regulations of the FLSA with regards to fire and police department employees.
When employers are trying to determine whether an employee meets the requirements under the FLSA to be exempt from overtime laws, they must first determine if the employee meets both the salary basis and duties requirements of the tests for each exemption classification.
Salary Basis Test – To qualify for the exemption from overtime, an employee who works in an executive, administrative, learned or creative professional job must to be paid at least $455 per week on a salary or fee basis. Outside sales, teachers, lawyers, doctors, and medical interns and residents are not required to meet the salary basis test of $455 per week. Computer employees may be exempt from overtime laws as explained in the FLSA if they earn $27.63 or more per hour and pass the duties test as explained later in this article.
In addition, employees earning more than $100,000 per year may be exempt as highly compensated employees without passing the full duties test. If the employee is customarily and regularly performing any one or more of the exempt duties or responsibilities of an executive, administrative, learned or creative professional, then they are exempt from the overtime requirements without satisfying the full duties test.
Keep in mind that an employee is paid on a salary basis if the following conditions are met:
- The employee regularly receives the same predetermined amount each pay period on a weekly or less frequent basis, which makes up all or part of the employee’s compensation.
- The employer may not reduce the amount of money that the employee earns because of variations in the quantity or quality of work that the employee performs.
- The employees must receive a full salary for any week in which the employee performs any work, without regards to the number of days or hours worked.
- The employer does not need to pay the employee for any workweek in which the employees performs no work.
In simple terms, an exempt employee is paid “to get the job done” and it does not matter how many hours that he or she works in a workweek, as he or she will get paid the same amount of money. They are not eligible for overtime at the rate of time and one-half for all hours worked over 40 in a workweek, as they are expected to work at any time when duty calls.
There are certain deductions that an employer is allowed to make from an exempt employee’s pay and they are as follows:
- No work is performed in a workweek.
- Absence from work for one or more full days due to sickness or disability (including workers’ compensation) if deductions made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences.
- Absences of one or more full days for personal reasons other than sickness or disability (deduct in full day increments only).
- Fees received by the employee for jury or witness duty or military leave may be applied to offset the pay otherwise due to the employee for the week.
- Penalties imposed by infractions of safety rules of major significance.
- Unpaid disciplinary suspensions of one or more full days in accordance with the organizations disciplinary policy.
- Deductions for the first and last week of employment, when only part of the week is worked by the employee.
- Deductions for unpaid leave taken in accordance with an approved absence under the Family and Medical Leave Act.
Administrative, learned or creative professional employees may be paid on a fee basis and not a salary basis. To determine whether the fee payment meets the salary requirement, the amount paid to the employee must be tested by determining the time worked on the job and whether the fee payment is at rate that would amount to at least $455 per week, if the employee worked at least 40-hours in a workweek.
Duties Test – Employers need to ask themselves whether the employee’s primary duty fall within one of the following FLSA classifications: executive, administrative, learned professional, creative professional, computer professional, or outside sales. There are duties tests for each exemption classification and they are as follows:
An employee who is working in an executive level job must make at least $455 per week in order to meet the salary basis test and then meet all of the following requirements in order to be exempt from overtime laws in accordance with the FLSA:
- Primary duty of managing the enterprise or a recognized department or subdivision; And
- Customarily and regularly directs the work of two or more other employees (or their equivalent); And
- Has the authority to hire or fire other employees (or whose recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight).
An employee who is working in an administrative level job must make at least $455 per week in order to meet the salary basis test and then meet all of the following requirements in order to be exempt from overtime laws in accordance with the FLSA:
- Primary duty of performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; And
- Exercises discretion and independent judgment with respect to “matters of significance” as stated below:
- The employee has the authority to formulate, affect, interpret, or implement management policies or operating practices.
- The employee carries out major assignments on a continual basis in conducting the operations of the business.
- The employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business.
- The employee has authority to commit the employer in matters that have significant financial impact.
- The employee has the authority to negotiate and bind the organization on significant matters.
- The employee provides consultation or expert advice to management on a continual basis.
- The employee is involved in planning long-term or short-term business objectives.
- The employee investigates and resolves “matters of significance” on behalf of management on a continual basis.
- The employee represents the organization in handling complaints, arbitrating disputes, or resolving grievances.
An employee who is working in a learned professional level job must make at least $455 per week in order to meet the salary basis test and then meet all of the following requirements in order to be exempt from overtime laws in accordance with the FLSA:
- Primary duty of the performance of work requiring advanced knowledge, defined as work, which is predominantly intellectual in character and includes work requiring the consistent exercise of discretion and judgment; And
- Advanced knowledge must be in a field of science or learning; And
- Advance knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
An employee who is working in a creative professional level job must make at least $455 per week in order to meet the salary basis test and then meet the following requirement in order to be exempt from overtime laws in accordance with the FLSA:
- Primary duty of the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic endeavor.
An employee who is working in a computer professional level job must make at least $455 per week or $27.63 per hour in order to meet the salary basis test and then meet some of the following requirements in order to be exempt from overtime laws in accordance with the FLSA:
- Employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field performing the following duties:
- Application of systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional applications; OR
- Design, development, documentation, analysis creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; OR
- Design, documentation, testing, creation, or modification of computer programs related to machine operating systems; OR
- A combination of duties described in any of the above, and the performance of which requires the same level of skills.
The computer professional exemption is the only classification under the regulations of the FLSA that allows an employee to be conducting one OR the other duties in the test. All other exemption classifications require the employee to be completing ALL duties in the test.
An employee who is working in an outside sales job is not required to meet the salary basis test of $455 per week, however, must meet all of the following requirements in order to be exempt from overtime laws in accordance with the FLSA:
- Primary duty of making sales (any sale, exchange, contract to sell, consignment for sales, shipment for sale or other disposition including the transfer of title to tangible and valuable evidences of intangible property), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client of customer; And
- The employee must be customarily and regularly engaged away from the employer’s place or places of business.
For employees who do not meet one of the above exemption test requirements, e.g. executive, administrative, learned professional, creative professional, computer professional, or outside sales, they must be considered eligible for overtime paid at time and one-half for all hours worked over 40 in a workweek and in accordance with all regulations under the FLSA. Some States require that overtime be paid for all hours worked over eight in a workday. So, it is important to know each States requirement. In Indiana, where most of the people who are reading this article have employees the federal rule prevails.
The FLSA does not have any guidelines for full-time or part-time employment. So, in a nutshell there are no guidelines if an employee works full-time or part-time for an employer when it comes to pay and overtime. The federal law states that all hours worked over 40 in a workweek qualify for the payment of overtime at the rate of time and one-half, whether the employee is classified in the employer’s system as full-time or part-time.
While this article defined the ways in which employers must classify their employees with regards to the FLSA, the third article will further clarify section 3(s)(1)(C) of the FLSA with regards to how all public agency employees of a State, a political subdivision of a State, or an interstate government agency must comply with the payment of overtime for employees who are engaged in fire and police department activities.
For additional information on how to determine if an employee is exempt from the overtime regulations as outlined in the FLSA, please contact us at www.newfocushr.com or refer to the Department of Labor – Wage and Hour Division website at www.dol.gov/whd .
Written by: Kristen Deutsch, M.B.A., CCP
President
12/12/18
