When staffing your business, you need to consider whether your employees are “exempt” or “nonexempt” from being paid overtime. The Fair Labor Standards Act (FLSA) sets out federal guidelines on exempt and nonexempt classifications. Most states have their own wage and hourly rate laws you will need to check out as well.
The FLSA requires that most employees receive at least minimum wage for each hour worked and overtime pay for hours worked over 40 in a workweek. Employees entitled to both of these are considered “nonexempt,” while, generally speaking, salaried employees who do not receive overtime pay and/or minimum wage are considered “exempt.”
Criteria for Exempt “White Collar” Employees
The most common FLSA exemptions are referred to as “white collar” exemptions for executive, administrative, professional, computer and outside sales roles. However, job titles alone do not classify an employee as exempt. They also must meet 3 other criteria to be considered exempt:
- Salary level
- Salary basis
- Job duties
The Salary Level criteria are generally straightforward. Currently, employees who are paid at least $455 per week or $23,600 per year are exempt.
The Salary Basis criteria refers to the fact that an exempt employee is paid a fixed salary or fee for a given pay period, regardless of the number of hours or days worked. Their pay does not fluctuate based on the quality or quantity of work performed.
There are specific Job Duties outlined for each exemption group (executive, administrative, etc.) that determine exempt status. Examples of duties that qualify “executive” roles as exempt include supervising two or more other employees as well as management responsibilities such as hiring, promotion, job assignment and firing input on those employees.
If an employee does not meet all three of the criteria, they are considered nonexempt and employers must pay overtime at time and one-half of their regular pay rate.
Need help determining whether an employee is exempt or nonexempt? Our Exempt vs Non-Exempt Employee Classification Checklist can help you figure it out, step-by-step.