Exempt Employees Part I: Executive, Administrative, and Professional Employees May be Exempt from Overtime Pay Requirements.

By Andrew D. Randol - September 6, 2019 - Employment & Labor

Many employers assume they can opt to pay any of their employees a salary instead of an hourly wage in order to avoid paying overtime. However, the Fair Labor Standards Act (“FLSA”) imposes a number of nuanced requirements upon paying an employee a salary. In legal parlance, an employee who properly receives a salary is called an exempt employee because he or she is exempt from the FLSA’s overtime requirements.

There are two primary legal requirements to pay an employee a salary, instead of an hourly wage. First, the employee’s work duties must fall within one of the exempt categories listed in the FLSA. This  requirement is generally known as the “duties test.” Second, the employee must receive an actual “salary” as the FLSA defines the term. This is generally known as the “salary basis test.”

In this article, our Columbus employment attorney breaks down the three most commonly used categories under the duties test, which are executives, administrative, and professional employees. In future latest thinking posts, our Columbus employment lawyer will discuss the outside sales employee and the commissioned employee exemptions, as well as the salary basis test itself.

Executive Duties Exemption

Under the executive duties exemption, the employee: (1) must be paid a salary, (2) must have a primary duty of management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof, (3) must customarily and regularly direct the work of two or more other employees, and (4) must have 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.[1]

The FLSA lists a number of duties that are considered to be management. Some of these include interviewing, selecting, and training of employees, directing the work of employees, maintaining production or sales records for use in supervision or control, appraising employees’ productivity, disciplining employees, planning work, apportioning work among employees, planning and controlling the budget, or implementing legal compliance measures.[2]

Administrative Duties Exemption

Under the administrative duties exemption, the employee: (1) must be paid a salary, (2) must have a primary duty in 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; and (3) the primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.[3]

The phrase “directly related to the management or general business operations” means that the employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment. This includes work directly related to management or general business operations, such as tax, finance, accounting, budgeting, insurance, quality control, purchasing, procurement, advertising, marketing, research, safety and health, personnel management, human resources, employee benefits, public relations, computer network, internet and database administration, legal and regulatory compliance, and similar activities.[4]

Professional Employees Exemption

Finally, under the professional employees exemption, the employee: (1) must be paid a salary, (2) the employee’s primary duty is the performance of work that: (i) requires knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction (generally referred to as learned professionals) or (ii) requires invention, imagination, originality or talent in a recognized field of artistic or creative endeavor (generally referred to as creative professionals).[5]

Learned professionals generally include lawyers, doctors, accountants, engineers, architects, teachers, scientists, and pharmacists, although many other professions may qualify. Creative professionals generally include actors, musicians, composers, novelists, and sometimes journalists.

Each exempt category is specifically described under federal law and corresponding regulations, often in painfully dry language. However, employers must use caution when determining if an employee meets one of these exempt classifications. Misclassifying an employee as exempt can lead to thousands of dollars in legal penalties for employers if the employee later sues for overtime wages they should have been paid. Thus, a Columbus employment lawyer should be consulted when making these determinations.

Whether you’re hiring your first employee or your business is already established, feel free to contact our Columbus business attorney to learn how we can ensure your company is in compliance with applicable labor and employment laws.

[1] 29 CFR § 541.100

[2] 29 CFR § 514.102

[3] 29 CFR § 541.200

[4] 29 CFR § 541.201

[5] 29 CFR § 541.300