Labor & Employment Law Articles

The FLSA requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at time and one-half the regular rate of pay for all hours worked over forty (40) hours in a workweek. 

However, Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees employed as bona fide executive, administrative, professional and outside sales employees.  Section 13(a)(1) and Section 13(a)(17) also exempt certain computer employees. To qualify for exemption, employees generally must meet certain tests regarding their job duties and be paid on a salary basis at not less than $455 per week.  Job titles do not determine exempt status.  In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Department’s regulations. 

1.1        Executive Exemption

To qualify for the executive employee exemption, all of the following tests must be met: 

• The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week;

• The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise;

• The employee must customarily and regularly direct the work of at least two (2) or more other full-time employees or their equivalent; and

• The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight. 

1.2        Administrative Exemption

To qualify for the administrative employee exemption, all of the following tests must be met: 

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;

• The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

• The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 

1.3        Professional Exemption

To qualify for the learned professional employee exemption, all of the following tests must be met: 

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week;

• The employee’s primary duty must be the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;

• The advanced knowledge must be in a field of science or learning; and

• The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction. 

To qualify for the creative professional employee exemption, all of the following tests must be met: 

• The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week; and

• The employee’s primary duty must be the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.   

1.4        Computer Employee Exemption

To qualify for the computer employee exemption, the following tests must be met: 

• The employee must be compensated either on a salary or fee basis (as defined in the regulations) at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour; and

• The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;

The employee’s primary duty must consist of: 

• The application of systems analysis techniques and procedures, including consulting with users to determine hardware, software or system functional specifications; 

• The 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;

• The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

• A combination of the aforementioned duties, the performance of which requires the same level of skills.  

The computer employee exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment.  Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (e.g., engineers, drafters and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations identified in the primary duties test described above, are also not exempt under the computer employee exemption. 

1.5        Outside Sales Exemption

To qualify for the outside sales employee exemption, all of the following tests must be met: 

• The employee’s primary duty must be making sales (as defined in the FLSA), 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; and

• The employee must be customarily and regularly engaged away from the employer’s place or places of business.  

The salary requirements of the regulation do not apply to the outside sales exemption.  An employee who does not satisfy the requirements of the outside sales exemption may still qualify as an exempt employee under one of the other exemptions allowed by Section 13(a)(1) of the FLSA and the Part 541 regulations if all the criteria for the exemption are met.

1.6        Highly-Compensated Employees

The regulations contain a special rule for highly-compensated employees who are paid total annual compensation of $100,000 or more.  A highly-compensated employee is deemed exempt under Section 13(a)(17) if: 

• The employee earns total annual compensation of $100,000 or more, which includes at least $455 per week paid on a salary basis;

• The employee’s primary duty includes performing office or non-manual work; and

• The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee. 

Thus, for example, an employee may qualify as an exempt highly-compensated executive if the employee customarily and regularly directs the work of two (2) or more other employees, even though the employee does not meet all of the other requirements in the standard test for exemption as an executive. 

1.7        Blue Collar Workers

The exemptions provided by FLSA Section 13(a)(1) apply only to “white collar” employees who meet the salary and duties tests set forth in the Part 541 regulations.  The exemptions do not apply to manual laborers or other “blue collar” workers who perform work involving repetitive operations with their hands, physical skill and energy.  FLSA-covered, non-management employees in production, maintenance, construction and similar occupations, such as carpenters, electricians, mechanics, plumbers, iron workers, craftsmen, operating engineers, longshoremen, construction workers and laborers, are entitled to minimum wage and overtime premium pay under the FLSA, and are not exempt under the Part 541 regulations no matter how highly paid they might be. 

1.8        Police, Fire Fighters, Paramedics and Other First Responders

The exemptions also do not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, fire fighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work. 

1.9        Other Laws and Collective Bargaining Agreements

The FLSA provides minimum standards that may be exceeded, but cannot be waived or reduced.  Employers must comply, for example, with any federal, state or municipal laws, regulations or ordinances establishing a higher minimum wage or lower maximum workweek than those established under the FLSA.  Similarly, employers may, on their own initiative or under a collective bargaining agreement, provide a higher wage, shorter workweek, or higher overtime premium than provided under the FLSA.  While collective bargaining agreements cannot waive or reduce FLSA protections, nothing in the FLSA or the Part 541 regulation relieves employers from their contractual obligations under such bargaining agreements. 

1.10      Salary Basis Requirement

To qualify for exemption, employees generally must be paid at not less than $455 per week on a salary basis.  These salary requirements do not apply to outside sales employees, teachers, and employees practicing law or medicine.  Exempt computer employees may be paid at least $455 on a salary basis or on an hourly basis at a rate not less than $27.63 an hour. 

Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent, basis.  The predetermined amount cannot be reduced because of variations in the quality or quantity of the employee’s work.  Subject to exceptions listed below, an exempt employee must receive the full salary for any week in which the employee performs any work, regardless of the number of days or hours worked.  Exempt employees do not need to be paid for any workweek in which they perform no work.  If the employer makes deductions from an employee’s predetermined salary, i.e., because of the operating requirements of the business, that employee is not paid on a “salary basis.”  If the employee is ready, willing and able to work, deductions may not be made for time when work is not available. 

1.11      Circumstances in Which the Employer May Make Deductions from Pay

Deductions from pay are permissible when an exempt employee: 

• Is absent from work for one or more full days for personal reasons other than sickness or disability;

• For absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;

• To offset amounts employees receive as jury or witness fees or for military pay; 

• For penalties imposed in good faith for infractions of safety rules of major significance; or

• For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions. 

Also, an employer is not required to pay the full salary in the initial or terminal week of employment, or for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act. 

1.12      Effect of Improper Deductions from Salary

The employer will lose the exemption if it has an “actual practice” of making improper deductions from salary.  Factors to consider when determining whether an employer has an actual practice of making improper deductions include, but are not limited to:  the number of improper deductions, particularly as compared to the number of employee infractions warranting deductions; the time period during which the employer made improper deductions; the number and geographic location of both the employees whose salaries were improperly reduced and the managers responsible; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.  If an “actual practice” is found, the exemption is lost during the time period of the deductions for employees in the same job classification working for the same managers responsible for the improper deductions. 

Isolated or inadvertent improper deductions will not result in loss of the exemption if the employer reimburses the employee for the improper deductions. 

1.13      Safe Harbor

If an employer:  (1) has a clearly communicated policy prohibiting improper deductions and including a complaint mechanism, (2) reimburses employees for any improper deductions, and (3) makes a good faith commitment to comply in the future, the employer will not lose the exemption for any employees unless the employer willfully violates the policy by continuing the improper deductions after receiving employee complaints. 

1.14      Fee Basis

Administrative, professional and computer employees may be paid on a “fee basis” rather than on a salary basis.  If the employee is paid an agreed sum for a single job, regardless of the time required for its completion, the employee will be considered to be paid on a “fee basis.”  A fee payment is generally paid for a unique job, rather than for a series of jobs repeated a number of times and for which identical payments repeatedly are made.  To determine whether the fee payment meets the minimum salary level requirement, the test is to consider the time worked on the job and determine whether the payment is at a rate that would amount to at least $455 per week if the employee worked forty (40) hours.  For example, an artist paid $250 for a picture that took twenty (20) hours to complete meets the minimum salary requirement since the rate would yield $500 if forty (40) hours were worked. 

1.15      Primary Duty

“Primary duty” means the principal, main, major or most important duty that the employee performs.  Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole. 

1.16      Total Annual Compensation

The required total annual compensation of $100,000 or more may consist of commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period, but does not include credit for board or lodging, payments for medical or life insurance, or contributions to retirement plans or other fringe benefits. 

1.17      Make-Up Payments and Prorating

There are special rules for prorating the annual compensation if employees work only part of the year, and which allow payment of a single lump-sum, make-up amount to satisfy the required annual amount at the end of the year and similar make-up payments to employees who terminate before the year ends. 

1.18      Customarily and Regularly

“Customarily and regularly” means greater than occasional but may be less than constant, and includes work normally and recurrently performed every workweek but does not include isolated or one-time tasks. 

1.19      Making Sales

“Sales” include any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition.  It includes the transfer of title to tangible property and, in certain cases, of tangible and valuable evidences of intangible property. 

1.20      Obtaining Orders or Contracts for Services or for the Use of Facilities

Obtaining orders for “the use of facilities” includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, and the solicitation of freight for railroads and other transportation agencies.  The word “services” extends the exemption to employees who sell or take orders for a service which may be performed for the customer by someone other than the person taking the order. 

1.21      Away from Employer’s Place of Business

An outside sales employee makes sales at the customer’s place of business, or, if selling door-to-door, at the customer’s home.  Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls.  Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property. 

1.22      Promotion Work

Promotion work may or may not be exempt outside sales work, depending upon the circumstances under which it is performed.  Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work.  However, promotion work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work. 

1.23      Drivers Who Sell

Drivers who deliver products and also sell such products may qualify as exempt outside sales employees only if the employee has a primary duty of making sales.  Several factors should be considered in determining whether a driver has a primary duty of making sales, including a comparison of the driver’s duties with those of other employees engaged as drivers and as salespersons, the presence or absence of customary or contractual arrangements concerning amounts of products to be delivered, whether or not the driver has a selling or solicitor’s license when required by law, the description of the employee’s occupation in collective bargaining agreements, and other factors set forth in the regulation.