FLSA EXEMPTIONS FLOW CHART This flow chart serves as a basic outline for an initial analysis of positions being considered for exemption under the FLSA and is meant to serve as one of several tools for this analysis. It may be appropriate for new positions which are borderline exempt to have legal counsel review the analysis and exemption decisions. The three-step process is explained in greater detail on the following pages. STEP 1: SALARY BASIS TEST STEP 2: EXEMPTION APPLICABILITY STEP 3: JOB ANALYSIS Is the employee paid at least $455 per week ($23,660 per annum), not subject to reduction due to variations in quantity/quality of work performed? YES Does the Employee perform any of the following types of jobs? Executive management is the employee s primary duty YES A thorough analysis of the job duties must be performed to determine exempt status. An exempt position must pass both the salary basis and the duties tests. The computer professional exemption has a salary basis test of $455 per week or $27.63 per hour. The outside sales exemption is not subject to the salary basis test. Administrative employee performing nonmanual office work Professional/Creative employee whose work requires highly advanced knowledge/education; creative and artistic professional Computer Professional employee involved in design or application of computers and related systems Outside Sales employee making sales or taking orders which influence sales outside of the employer s premises NO NO Employee is Non-Exempt Employee is Non-Exempt Page 1
FLSA EXEMPTIONS FLOW CHART Step 1: Apply the salary basis test If the employee is paid at least $455 per week ($23, 660 per annum) that is not subject to reduction due to variations in quantity/quality of work performed, continue to Step 2. Please note that the salary basis test for computer professionals is $455 per week or $27.63 per hour. The outside sales exemption is not subject to the salary basis test. Step 2: Determine which exemption applies Executive Employee whose primary duty is to manage the business or a recognized department/entity and who customarily directs the work of two or more employees. Also includes individuals who hire, fire or make recommendations that carry particular weight regarding employment status. Examples: executive, director, owner, manager, supervisor. Administrative Employee whose primary activities are performing office work or non-manual work on matters of significance relating to the management or business operations of the firm or its customers and which require the exercise of discretion and independent judgment. Examples: analyst, accountant. Professional Creative Employee who primarily performs work requiring advanced knowledge/education and which includes consistent exercise of discretion and independent judgment. The advanced knowledge must be in a field of science or learning acquired in a prolonged course of specialized intellectual instruction. Creative professionals perform work requiring invention, imagination, originality and/or talent in a field of artistic endeavor. Examples: attorney, physician, statistician, architect, biologist, pharmacist, engineer, teacher, author, editor, composer, musician, artist. Computer Professional Employee who primarily performs work as a computer systems analyst, programmer, software engineer or similarly skilled work in the computer field performing a) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications; or b) design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specification; or c) design, documentation, testing creation or modification of computer programs based on and related to user or system design specifications; or a combination of the duties described above, the performance of which requires the same level of skills. Examples: system analyst, database analyst, network architect, software engineer, programmer. Outside Sales Employee who performs sales work off the company s premises and whose primary duties include making sales or obtaining order or contracts for services or for the use of facilities for which the client or customer pays. This employee is customarily and regularly away from the company s place of business while performing such duties. Examples: sales representative, account manager, business development representative. Page 2
Step 3: Conduct job analysis If the employee passes BOTH the salary test (excluding outside sales) and the preliminary exemption criteria review, then a thorough job analysis of the duties actually performed by each employee becomes the key in determining exempt status. An exempt position must pass both the salary basis and duties test. Job titles are insufficient to determine exempt status. Job analysis should include the following actions: 1. Review minimum qualifications established for the job, including education, on-the-job training and experience. 2. Review prior job descriptions, job questionnaires and related documentation. 3. Confirm with managers that duties and qualifications are accurate. 4. Conduct workflow reviews - a useful tool in ascertaining job functions, processes, job boundaries and organizational operations. Schematics and charts can also prove to be helpful. 5. Gather organizational charts for departments and positions being reviewed. 6. Review policy manuals to determine functional autonomy of positions. 7. Gather prior performance reviews which document duties and responsibilities or respective positions. If little is known regarding the history of a position or it has been inadequately documented, HR should consider conducting a review of the position to bring it up to date. Recommended activities may include direct job duty observation, work function or work breakdown analysis, group or peer review of occupants sharing the classification, job banding/job progression plans and work log analysis and job metrics. Ancillary issues 1. Review state wage/hour laws for those states in which the organization operates to ensure there is no conflict with state laws (available at www.shrm.org/government/states/aroundcountry_published/cms_008223.pdf). 2. Capture payroll costs and budgetary needs and evaluate whether costs and budgetary considerations will be best met by raising incumbent salaries to retain exempt status (provided duties test is met), budgeting for overtime costs or hiring additional staff to eliminate the need for overtime. 3. Ensure HRIS systems are updated to accurately reflect employee s exempt/non-exempt classifications. 4. Review and honor collective bargaining agreements, where possible. Exemption Test: An employee must be earning, at least, $23,660 ($455/week) and meet all of the requirements of one of the exemption tests as outlined below to be eligible for exemption under the FLSA. (Employees earning more than $100,000 in total annual compensation are only required to customarily and regularly perform one of the exempt duties of the Executive, Administrative or Professional tests). There is no salary requirement for the Outside Sales exemption. Page 3
Exemption Category - Job Duties Test Executive Administrative Professional Computer Professional Outside Sales Learned Creative Primary duty of managing the enterprise or a recognized department of subdivision. - Employees who spend more than 50% of their time performing exempt work will generally satisfy the primary duty requirement. However, the regulations do not required that exempt employees spend more than 50% of time performing exempt work. 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. 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. Primary duty of the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic endeavor. Employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the following duties: a) application of systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional applications, 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 property, and in certain cases of 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 or customer. Page 4
Exemption Category - Job Duties Test Executive Administrative Professional Computer Professional Outside Sales Learned Creative Customarily and regularly directs the work of two or more other employees (or their equivalent) - Customarily and regularly means: * A frequency that must be greater than occasional, but which may be less than constant; * Includes work normally and recurrently performed every workweek; * Does not include isolated or one-time tasks. 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). Exercises discretion and independent judgment with respect to matters of significance. - Discretion and independent judgment is defined as: * The comparison and evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. Must be exercised with respect to matters of significance, which refers to the level of importance or consequence of the work performed. Decisions and recommendations may be reviewed at a higher level and, upon occasion, revised or reversed. Advanced knowledge must be in a field of science or learning. Advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. b) 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, c) Design, documentation, testing, creation, or modification of computer programs related to machine operating systems, d) A combination of duties described in a., b., c., the performance of which requires the same level of skills. The employee must be customarily and regularly engaged away from the employer s place or places of business. Page 5