Who is Entitled to Overtime Pay?

In order to be exempt from the FLSA, you have to be making independent decisions on matters of significance. For example, if you have authority to hire and fire certain staff without review by someone else, or authority to negotiate and enter into contracts (for more than the purchase of pencils) without consulting the boss, or authority to unilaterally choose a different health insurance carrier – just to give you a few examples – then you might properly be classified as exempt. Many, many people improperly classify office managers – even highly-skilled, independent, professional office managers – as exempt.

The general rule is that only executive, administrative, professional, and outside sales employees can properly be considered exempt. In addition, though, “Highly Compensated Employees” performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

It is important to note that the rules/definitions that apply for each of the categories of exempt employees are surprisingly strict. Not only must each of the following tests be met, but special focus is always given to the key elements. For example, for Administrative employee exemptions, the key is the exercise of discretion, and in that regard the courts routinely require the exercise of significant amounts of discretionary authority over important issues within the enterprise.

For each of the first three exemptions, the employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week and must also meet the definitional tests set forth in the regulations.

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

  • 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 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.

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

  • 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.

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

  • 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 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.

There are also two other categories of exempt employees that are not part of the original regulatory scheme but which are understandably exempt:

To qualify for the creative professional employee exemption, the following test must be met:

  • 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.

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;
  • 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.
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