The Fair Labor Standards Act and exempt employees
One of the most important, but least understood issues, in modern employment law is the concept of overtime. The overtime issue is important for both employees and employers. Employees need to make sure they are being paid fairly for their work. Employers want to make sure they comply with applicable law and treat their employees fairly.
Over the years I have met with numerous individuals that believe they were not entitled to overtime because they were “salaried” employees. Conversely, I have met with a number of employers that believed “salaried” employees were not entitled to overtime.
This assumption about overtime law overly simplifies the analysis. Instead, the correct determination is whether an employee is “exempt” under the Fair Labor Standards Act. The issue is not as simple as being “salaried” as opposed to “hourly.”
There are two requirements to be exempt: (1) the salary test; and (2) the duties test.
The salary test. Starting on December 1, 2016 an employee must make a salary of over $47,476 per year ($913 per week) in order to be exempt from overtime law. The previous standard was $23,600 ($455 per week). This new law means that many employees that previously were “exempt” are now going to be eligible for overtime pay.
The duties test. A salaried employee is only exempt if the employee engages in those types of work that qualify as exempt. Examples include executive, professional and administrative employees.
An individual is an executive employee if: (1) the employee regularly supervisors two or more other employees; (2) the employee’s primary duty is management; and (3) the employee has some genuine input concerning other employee’s work status.
An individual is an administrative employee if the job duties are: (1) office work; (2) the work is directly related to management or general business operations; and (3) a primary component of that work is exercising independent judgment about matters of significance. An administrative employee is typically an employee that provides support to those other employees that produce the product or make sales.
As an employee make sure you are properly classified as “exempt” versus “non-exempt” when it comes to overtime. As an employer it is important to ensure compliance with the law.