Guide to Identifying Exempt Employees Under the New FLSA Rules

Changes are coming this December for how white collar employees are classified as either exempt or non-exempt. Depending on a variety of factors, the distribution of exempt Executive, administrative, and professional employees at your company could look different.

Listed below are the Department of Labor’s impending rule changes for how exempt employees are classified:

Three Tests Must Be Met in Order to Claim a White Collar Exemption

First, they must be paid on a salary basis not subject to reduction based on quality or quantity of work (“salary basis test”) rather than, for example, on an hourly basis;
Second, their salary must meet a minimum salary level, which after the effective date of the Final Rule will be $913 per week, which is equivalent to $47,476 annually for a full-year worker (“salary level test”); and
Third, the employee’s primary job duty must involve the kind of work associated with exempt executive, administrative, or professional employees (the “standard duties test”).

It’s important to note that salary level is not a minimum wage requirement, and no employer is required to pay an employee the salary specified in the regulations, unless the employer is claiming an applicable white collar exemption.

The duties tests remain unchanged under the Final Rule. These tests are summarized below.

Professional Exemption
There are several different kinds of exempt “professional” employees. These include “learned professionals,” “creative professionals,” teachers, and employees practicing law or medicine. Under the new rules, exempt professional employees must receive at least $913 a week (the equivalent of $47,476 a year) on a salary or fee basis (compared to $455 a week under the old rule), and must primarily perform work that either requires advanced knowledge in a field of science or learning, usually obtained through a degree, or that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

Administrative Exemption
To qualify for the administrative exemption, an employee must receive at least $913 a week (the equivalent of $47,476 a year) on a salary or fee basis, and 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. Additionally, the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

Executive Exemption
To qualify for the executive exemption, an employee must receive compensation on a salary basis of not less than $913 per week (the equivalent of $47,476 a year), and have the primary duty of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise. Additionally, the employee must customarily and regularly direct the work of at least two other full-time employees or their equivalent (for example, one full-time and two half-time employees are equivalent to two full-time employees), and 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.

The Labor Department has many resources dedicated to helping employees comply with these new rules. Consulting with an employment lawyer is always a smart decision if confusion persists. Lastly, ATR Systems offers FLSA consultations to help HR professionals comply with labor laws.