One of the toughest tasks for an HR manager or business owner is managing risk to prevent lawsuits. Employers may unintentionally violate employment laws and never realize the risk they create for the company. Trying to provide some flexibility for an employee, saving money for the company, or just being nice are all ways that an act of kindness can become a business liability.

The differences between exempt employees and nonexempt employees can cause a lot of confusion for both workers and employers. Whether or not you are entitled to minimum wage and/or overtime pay for working more than 40 hours per week depends on your exemption status, as governed by the Federal Fair Labor Standards Act (FLSA). Some jobs are specifically excluded from the FLSA statute, including many types of agricultural workers, while truck drivers and some other professions are governed by laws other than the FLSA. The majority of U.S. workers, though, are covered by the FLSA and are classified as either nonexempt or exempt employees with respect to pay and overtime regulations. The following summary breaks down how the exemption rules work.

 Nonexempt Employees 

A nonexempt employee must be paid the minimum wage and overtime pay for any time worked beyond 40 hours in a given week. Under FLSA rules, nonexempt employees are entitled to time and one-half of their regular pay rate for each hour of overtime. Nonexempt employees mistakenly treated as exempt employees, or whose “off-the-clock” hours are not properly recorded and compensated, may file FLSA overtime claims with the U.S. Department of Labor. Most workers, particularly those working an hourly wage, are in fact nonexempt employees.

Exempt Employees 

Exempt employees are not granted the protections of the FLSA and are therefore not entitled to overtime pay. Some types of jobs are considered exempt by definition under the law, including outside sales staff and airline employees. But for most professions, an individual is an exempt employee if he or she meets the following three tests:

  1. Is paid at least $23,600 per year (or $455 per week)
  2. Is paid on a salary basis
  3. Performs exempt job duties

The salary requirement does not apply to certain professions that pay on an hourly basis, including physicians and schoolteachers.

Exempt Job Duties 

The third test for exemption status concerns the type of work an employee performs. As a rule of thumb, exempt employees tend to perform relatively high-level duties with respect to the company’s overall operations (regardless of job title). The FLSA breaks this out into three main categories: executive, professional and administrative.

Exempt Job Duties: Executive 

An employee is exempt from FLSA rules as an executive if he or she regularly performs all of the following:

  1. Supervises two or more other employees
  2. Primary duty of the position is management
  3. Has genuine input into other employees’ job status (hiring, firing, assignments, etc.)

This determination is made on a case-by-case basis, as each duty leaves room for interpretation. As a rule of thumb, an employee working exempt executive duties is “in charge” or considered “the boss.”

 Exempt Job Duties: Professional 

Exempt professional employees include lawyers, physicians, teachers, architects, registered nurses and other employees performing work requiring advanced education or training. These typically are intellectual jobs requiring specialized education and involving the use of discretion and judgment. This exemption does not include skilled trades, mechanical arts or other work that does not require a college or postgraduate degree.

This exemption also includes creative professionals such as writers, journalists, actors and musicians. Typically, such jobs require imagination, talent and some unique contribution to the employer.

Exempt Job Duties: Administrative 

This exemption is for employees whose main duties involve the support of the business, such as human resource staff, public relations or payroll and accounting. As a rule of thumb, administrative employees do not directly produce what the company sells; however, they are at a much higher level than those performing simple clerical work.

The FLSA defines exempt administrative job duties as follows:

(a) office or non-manual work, which is

(b) directly related to management or general business operations of the employer or the employer’s customers, and

(c) a primary component of which involves the exercise of independent judgment and discretion about

(d) matters of significance.

Employers may also make salary deductions (without jeopardizing the employee’s exempt status) for one or more full days an employee takes off for the following reasons:

•to handle personal affairs •to go on unpaid family or medical leave under the FMLA;

•for disability or illness, if the employer has a plan (such as disability insurance or sick leave) that compensates employees for this time off;

•to serve on a jury, as a witness, or on temporary military leave, but the employer may deduct only any amount that the employee receives as jury or witness fees or as military pay;

•during the employee’s first or last week of work, if the employee does not work a full week;

•as a penalty imposed in good faith for infractions of safety rules of major significance (rules that prevent serious danger in the workplace or to other employees);

•to serve an unpaid disciplinary suspension imposed in good faith for infractions of workplace conduct rules, but only if the employer has a written policy regarding such suspensions that applies to all employees. Likewise, an employer that makes improper deductions from a salaried employee’s pay can get into big trouble. However, the law does contain a “safe harbor” provision, which offers employers some protection if they make improper deductions inadvertently.


Seek a competent professional before you attempt to classify an employee at time of hiring:



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