Everything You Need to Know About Salary Exempt Employees
Are all salaried employees exempt? What, exactly, are these employees exempt from?
If you’re a new employer or you’re creating a new position in your organization, you might be wondering how to categorize employees’ salary status. Let’s take a look at salary exempt employees and how they differ from their non-exempt counterparts.
Non-exempt vs. exempt employees: What’s the difference?
The terms “salary-exempt employees” and “non-exempt employees” come from the Fair Labor Standards Act (FLSA).
In short, nonexempt employees are covered by provisions in the FLSA, and exempt employees are not covered.
In short, nonexempt employees are covered by provisions in the FLSA, and exempt employees are not covered.
What are the FLSA provisions?
Most jobs in the U.S. are governed by the FLSA. The act establishes the minimum wage, overtime pay eligibility, record keeping, and youth employment standards that impact employees in the federal, state, and local governments and in the private sector.
Nonexempt employees are covered by the FLSA and are entitled to the following workplace rights:
- Minimum wage: Not less than $7.25 minimum hourly wage by federal law. In states where the state minimum wage is higher than $7.25 per hour, the state minimum wage is used to determine FLSA entitlements.
- Overtime pay eligibility: Overtime wage for hours worked over 40 in a workweek at not less than 1.5 times the employee’s regular rate of pay. The FLSA does not set a maximum limit on the overtime hours employers can require their employees to work. Therefore, employers can implement mandatory overtime at their discretion as long as they pay overtime compensation in accordance with the law.
- Record keeping: Accurate and detailed records of hours worked, and wages paid by their employers.
For minors, the FLSA also establishes restrictions on the types of work that can be performed, how many hours a day and week they may work, and other standards related to their health and safety.
What makes a position exempt?
An exempt employee is not entitled to the rights outlined in the Fair Labor Standards Act. To be classified as exempt, the employee must meet all 3 of the following tests:
The salary level test
According to the FLSA, a U.S. employee must be paid a minimum of $35,568 per year ($684 per week) to fall in the exempt category. However, some states have higher minimum amounts, which they set based on their minimum wage.
For example, the minimum gross annual salary an exempt employee must be paid in the State of Washington, which has a statewide minimum hourly workers’ wage of $15.74 per hour, is $65,484.
The salary basis test
Besides the minimum salary amount, all exempt employees must be paid on a salary basis. This means they must receive a guaranteed minimum salary from their employer each week regardless of the number of hours they work, as long as they work some hours.
However, the employee’s entire salary does not have to be guaranteed for them to be exempt. For example, a salesperson might earn a guaranteed “base” salary and commissions based on sales performance. The salesperson would still be considered exempt if the employer consistently pays the same base salary.
On the other hand, an hourly employee that earns a different amount of money for work time depending on how many hours they work is not exempt.
As an employer, paying your employees on a salary basis generally means keeping the base salary you pay constant. That’s the case regardless of the quality or quantity of their work.
So, you will still need to pay a full salary if an employee performs less work than usual because of a reason that is under your control, such as a slow business month or a temporary business closure.
There are, however, a few exceptions to this rule:
- If you suspend an exempt employee for disciplinary reasons, you can implement a pay deduction in full-day increments. (You may never deduct a partial day of pay.)
- If your organization has a legitimate sick leave plan, and your exempt employee has run out of sick leave, you may let them miss full work days without pay when they are sick.
- In all circumstances, you may require exempt employees to use accrued leave when absent from work.
The duties test
So, you have an employee to whom you pay more than the minimum salary required for an exempt employee in your state, and you pay that employee on a salary basis. That employee might be exempt, but only if their responsibilities are “exempt duties.”
The FLSA includes these 5 job duties as exempt:
- Outside sales
Here are the requirements for executive-exempt job duties:
- The employee must be responsible for supervising at least 2 other full-time employees. (Or as many part-time employees as it would take to equal 2 full-time equivalent employees). These must be actual employees, not volunteers or interns. Supervision must also be a regular part of the exempt worker’s job.
- The primary duty of their position must be management. In other words, you can’t just give your janitor 2 more janitors to supervise and call him a manager if he’s not performing management duties. Management duties can include interviewing and training new employees, maintaining records, handling employee grievances, planning the work of a particular department, assigning work, planning budgets, and other managerial tasks.
- The exempt executive employee must have some genuine input into job status decisions, such as hiring, firing, promotions, or assignments. This doesn’t mean that the employee has to be the final decision-maker. You might have a management team that weighs in and a CEO who makes the final decision, for example. But for an employee to be considered to be performing exempt executive duties, you have to give their opinion some weight. It has to matter, and it has to be a part of their job responsibilities.
The FLSA refers to people performing exempt professional job duties as part of the “learned professions.” It means that the work they perform is intellectual and requires specialized education.
It also means that the job depends upon the employee to exercise sound judgment and make determinations based on their expertise.
In general, the following jobs are considered exempt professionals:
- Registered nurses (but not LPNs)
- Accountants (but not bookkeepers)
- Licensed professional engineers
- Licensed social workers, psychologists, and other mental health professionals performing clinical work
- Other employees whose jobs require “advanced knowledge.”
According to the FLSA, an employee qualifies for the outside sales exemption if they meet the following criteria:
- Their primary duty is making sales or obtaining orders for goods or services.
- They typically perform their primary duty away from the employer’s business premises.
The FLSA also considers work incidental to or furthering an outside sales employee’s sales effort as exempt work.
This could include writing sales reports, attending sales conferences, planning itineraries, managing promotional activities, and other duties that help the employee make sales.
A contentious issue among many employers is whether drivers involved in sales can be considered exempt employees.
Drivers may be exempt only if they have a primary duty of making sales. In this case, the loading, driving, and delivering will be regarded as exempt work because they are incidental to the employee’s outside sales or solicitations.
The term “computer-related” in FLSA exemptions does not include every employee interacting with a computer in the workplace. Instead, the FLSA sets separate requirements that must make up a significant portion of an employee’s job for them to be exempted.
An exempt computer professional’s primary duty must involve working on or with computers beyond simply using them. Below are some of the job duties that would qualify as exempt computer-related work:
- System analysis, including consulting with users to make informed decisions about hardware or software options
- Design, development, testing, modification, and documentation of computer systems or programs based on user, system, or machine operating specifications
This is the category that’s the trickiest to define. Basically, it means that the employee “keeps the business running.” Think of administrative employees as those who provide support to the operational workers.
For example, human resources employees, payroll managers, and the staff who manage your records, accounting, public relations, budgeting, and marketing are usually administrative-exempt.
According to FLSA regulations, exempt administrative job duties must:
- Be office or non-manual work.
- Be directly related to management or general business operations.
- Primarily involve the exercise of independent judgment about significant things.
In other words, these are not clerical or secretarial employees. To be considered administratively exempt, the employee must be allowed to make important decisions as a regular part of their job.
What are the rights of exempt vs. non-exempt employees?
Non-exempt employees have rights under the FLSA, including minimum wage and overtime pay. But exempt employees do not have those rights. The only real “right” that the exempt employee has under the FLSA is to be paid their guaranteed minimum salary every week they perform some work.
Exempt workers are only exempt from FLSA protections, not all worker protection laws.
However, this doesn’t mean exempt workers have no rights. They are only exempt from FLSA protections, not all worker protection laws.
Regardless of exempt status, every salaried employee has the right to a safe and healthy work environment, equal employment opportunities and non-discrimination, and the rights provided under the Family and Medical Leave Act.
And like all employers, you are still bound by child labor laws regardless of your employees’ exempt status.
How many hours can a salaried exempt employee be forced to work?
Most employers expect their exempt employees to work the number of hours necessary to get their jobs done. It doesn’t matter if that takes more or fewer than 40 hours per week. Even if your exempt employee works 70 hours a week, you are still only required to pay them their standard base salary.
Even if your exempt employee works 70 hours a week, you are still only required to pay them their standard base salary.
However, just because there’s no employment law that prohibits you from requiring an exempt employee to work more than 40 hours a week doesn’t mean it’s a good idea. If you have an employee who regularly puts in a huge number of hours just to get the minimum amount of work done, you might want to reconsider your expectations.
If the job is impossible to get done in about 40 hours a week, you’re probably looking at a lot of employee burnout and a high turnover rate.
This article has been updated.