Everything You Need to Know About Salary Exempt Employees

Are all salaried employees exempt? What, exactly, are these employees exempt from?

salary-exempt-employee-workest

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 the difference between exempt and nonexempt workers.

Non-exempt vs. exempt employees

This might sound like an odd designation. What, exactly, are these employees exempt from? The terms “salary exempt employees” and “non-exempt employees” come from the Fair Labor Standards Act (FLSA). In short, the FLSA requires that employers classify all positions as either exempt or non-exempt. Non-exempt employees are covered by provisions in the FLSA, and exempt employees are not.

What makes a position exempt?

In order to be classified as exempt, an employee must meet all 3 of the following tests:

The salary level test

In order to be classified as exempt, an employee must be paid a minimum of $23,000 per year, or $455 per week. However, that isn’t the only test. There are many people who earn more than this amount and are still classified as non-exempt.

The salary basis test

Additionally, all exempt employees are paid on a “salary basis,” meaning they 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.

This doesn’t mean that the employee’s entire salary must be guaranteed. For example, A salesperson might earn a “base” salary that’s guaranteed and also earn commissions based on sales performance. But there must be some part of the employee’s salary that is guaranteed every week in which they work at all.

However, if the employee is paid by the hour, and earns a different amount of money depending on how many hours they work, they are probably not exempt.

So, in order to claim that you pay your employee on a salary basis, you generally may not “dock” their base pay based on the quality or quantity of their work. So even if the employee performs less work than normal, you must still pay them their full salary, as long as the reason for the reduction in work is under the employer’s control. For example, if you simply have no work for the employee to do because business is slow, you still have to pay the entire base salary.

There are, however, a few exceptions to this rule:

  • If you suspend an exempt employee for disciplinary reasons, you can dock their pay in full-day increments. (You may never dock 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 days of work without pay when they are sick
  • In all circumstances, you may require exempt employees to use accrued leave when they are absent from work

The duties test

So, you’ve got an employee who you pay more than $455 per week, and you pay that employee on a salary basis. That employee might be exempt, but only if their job responsibilities are “exempt duties.”

This means that the employee must perform high-level work. Their job title doesn’t mean that much. It’s the actual duties they perform that matter. In general, there are 3 different types of exempt job duties:

  • Executive
  • Professional
  • Administrative

Executive

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 two full-time equivalent employees). These must be actual employees, not volunteers or interns. And the supervision must be a regular part of the exempt employee’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 in order 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.

Professional

The FLSA refers to people performing exempt professional job duties as being part of the “learned professions.” It means that the work they perform is intellectual and requires a specialized education. It also means that the job depends upon the employee to exercise sound judgment and make determinations based on their own expertise.

In general, the following jobs are considered exempt professionals:

  • Lawyers
  • Doctors
  • Dentists
  • Teachers
  • Architects
  • Clergy
  • Registered nurses (but not LPNs)
  • Accountants (but not bookkeepers)
  • Licensed professional engineers
  • Actuaries
  • Scientists
  • Pharmacists
  • Licensed social workers, psychologists, and other mental health professionals performing clinical work
  • Other employees whose jobs require “advanced knowledge”

Administrative

This is the category that’s most tricky 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 nonmanual 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. In order to be considered administratively exempt, the employee must be allowed to make important decisions as a regular part of their job.

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 FLSA is to be paid their guaranteed minimum salary in any week that they perform some work.

However, this doesn’t mean that exempt employees have no rights at all. They are only exempt from FLSA protections, not all worker protection laws. All workers, regardless of exempt status, have 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 employee exempt status.

Overtime implications

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 in a week, you are still only required to pay them their standard base salary.

However, 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.

Bookmark(0)

Might also interest you