Understanding Exemptions Under the FLSA
Introduction The Fair Labor Standards Act (FLSA) was passed in 1938. It set standards for child labor, minimum wage and overtime pay. Since the passage of the Equal Pay Act in 1963 as part of the FLSA, the Act also prohibits gender-based wage discrimination. It is essential for all Human Resources staff to understand how to comply with the FLSA. The purpose of today s webcast is to help HR professionals gain a clearer understanding of the exemption rules under the FLSA. SHRM 2008 2
Objectives At the close of this webcast, you will be able to: State the definition of exempt and non-exempt employees. Understand the exempt requirement of being paid on a salary basis. Determine if an employee is exempt from FLSA minimum wage and overtime pay requirements under the exemptions for: Executive Administrative Professional Computer-Related Outside Sales Highly Compensated Employee SHRM 2008 3
Defining Exempt & Non-Exempt Employees Exempt Employees -- Employees who meet one of the FLSA exemption tests and who are paid on a fixed salary basis and not entitled to overtime. Non-Exempt Employees - Employees who do not meet any one of the Fair Labor Standards Act exemption tests and are paid on an hourly basis and covered by wage and hour laws regarding minimum wage, overtime pay, and hours worked. SHRM 2008 4
Salary Basis Requirement To be paid on a salary basis means that the employee regularly receives a predetermined amount constituting all or part of the employee s salary, which amount is not subject to reduction because of variations in the quality or quantity of work performed. SHRM 2008 5
Salary Basis Requirement (cont d) In other words, exempt employees must receive their full salary for any week in which they perform any work without regard to the number of days worked or how well the job was performed with the following main exceptions: SHRM 2008 6
Salary Basis Requirement (cont d) Hourly paid computer professional employees who make at least $27.63 per hour, doctors, lawyers, teachers and outside sales employees are exceptions to an exempt white-collar employee being paid be paid on a salary basis. SHRM 2008 7
Specific Prohibited Deductions from Salary Partial day absences (employers may pay for these using paid leave accounts). An exception to this prohibition is when the exempt employee is on FMLA leave. Actual pay deductions may be made for partial day FMLA absences. Jury duty and military leave unless the employee performs no work whatsoever during the employer s standard workweek. When no work is available such as during slow periods or when the business is closed due to weather emergencies. SHRM 2008 8
Exemptions from FLSA Minimum Wage and Overtime Pay Requirements Categories of Exemptions: Executive Administrative Professional Computer-Related Outside Sales Highly Compensated Employee SHRM 2008 9
Executive Exemption Must be paid at least $455 weekly ($23,660 annually) on a salary basis. Primary duty must consist of managing the company or a customarily recognized department of the company. Customarily and regularly direct the work of two or more fulltime employees or equivalents. Has the authority to hire or fire other employees or make recommendations that carry weight on significant employment decisions. Examples: Executive officer, controller, vice president, director. SHRM 2008 10
Administrative Exemption Must be paid at least $455 weekly ($23,660 annually) on a salary basis. Primary duty consists of performing office or non-manual work directly related to the management or general business operations of the company. Work includes the exercise of discretion and independent judgment with respect to matters of significance. Examples: manager, supervisor, administrator. SHRM 2008 11
Professional (Learned and Creative) Exemption Learned Professional: Must be paid at least $455 weekly ($23,660 annually) on a salary basis. (Teachers, licensed/certified practitioners of law and medicine, medical interns and residents do not have to be paid on a salary basis) Primary duty consists of the performance of work that requires advanced knowledge (beyond high school) and that is primarily intellectual in character and includes the exercise of discretion and independent judgment. SHRM 2008 12
Professional (Learned and Creative) Exemption (cont d) The advanced knowledge is in a field of science or learning. The advanced knowledge was acquired by a prolonged course of specialized intellectual instruction (appropriate academic degree or combination of degree and experience). Examples: accountant, nurse, engineer. SHRM 2008 13
Professional (Learned and Creative) Exemption (cont d) Creative Professional: Must be paid at least $455 weekly ($23,660 annually) on a salary basis. Primary duty consists of the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, or physical work. Examples: composer, singer, graphic designer. SHRM 2008 14
Computer-Related Exemption Must be paid at least $455 weekly ($23,660 annually OR at least $27.63 per hour. (Does not have to be paid on a salary basis.) Primary duty consists of: > The application of system-analyst techniques and procedures, including consulting with users to determine hardware, software, or systems specifications OR SHRM 2008 15
Computer-Related Exemption (cont d) The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, OR The design, documentation, testing, creation or modification of computer programs related to machine-operating systems, OR A combination of these duties which requires the same level of skills. Examples: network analyst, developer, software engineer. SHRM 2008 16
Outside Sales Exemption Does NOT have to be paid on a salary basis. Primary duty consists of making sales or obtaining orders for contracts for services or for the use of facilities for which consideration is paid by a client or customer. Customarily and regularly is engaged away from the employer s place of business. Examples: traveling salespersons, contract negotiators. SHRM 2008 17
Highly Compensated Exemption Highly compensated employees performing executive, professional or administrative duties: Must be paid a total compensation of $100,000 or more annually which includes at least $455 per week paid on a salary basis. The $100,000 annually may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation. SHRM 2008 18
Highly Compensated Exemption (cont d) Customarily and regularly performs at least one of the exempt duties or responsibilities of the Executive, Administrative, or Professional Exemption Primary duty consists of performing office, non-manual work Examples: real estate broker, stock broker. SHRM 2008 19
Summary Exempt Employees are employees who meet one of the FLSA exemption tests and who are paid on a fixed salary basis and not entitled to overtime. Non-Exempt Employees are employees who do not meet any one of the Fair Labor Standards Act exemption tests and are paid on an hourly basis and covered by wage and hour laws regarding minimum wage, overtime pay, and hours worked. SHRM 2008 20
Summary (cont d) Being paid on a salary basis means that the employee regularly receives a predetermined amount constituting all or part of the employee s salary, which amount is not subject to reduction because of variations in the quality or quantity of work performed. Limited exceptions pertain to doctors, lawyers, teachers and outside sales employees. SHRM 2008 21
Summary (cont d) An employee who meets the salary and job duties criteria may be exempt from FLSA minimum wage and overtime pay requirements under the exemptions for: Executive Administrative Professional Computer-Related Outside Sales Highly Compensated Employee SHRM 2008 22
Questions We will now address a few of the questions posed by participants in today s webcast. SHRM 2008 23
Additional Questions? If you have additional questions that were not addressed in today s webcast, please: > Contact the SHRM HR Knowledge Center at 800-283-7476 Opt. 5 (8:30 am 8:00 pm EST) An experienced HR Advisor will be glad to assist you. SHRM 2008 24
Conclusion Thank you for participating in today s webcast! SHRM 2008 25