Exempt or Non-Exempt

Overtime pay is a hot topic and wage and hour settlements are at an all-time high. The problem for employers: how to determine which positions are “exempt” and which are “non-exempt. ”

The Fair Labor Standards Act (FLSA) regulates overtime pay. The overtime provisions cover employees categorized as non-exempt. Those include most hourly employees, including clerical and blue-collar workers performing non-management routine work. Any employee earning less than $455 per week is non-exempt and must receive overtime for all hours over 40 in any given week.

Exempt employees are those not governed by the provisions regulating overtime pay. Professionals, such as doctors, lawyers, architects , and archeologists fall into this category. Exempt employees also include highly compensated employees who earn $100,000 per year or more and regularly perform duties at an executive level.

The major problem in determining non-exempt or exempt status is found in middle management white-collar positions. The old theory was that if an employee held the title of manager and supervised a few people, the management employee was “exempt.” However, that is not always the case. For an employee to qualify for an administrative exemption, he must have primary duties, which include, but are not limited to:

  • The exercise of discretion and independent judgment
  • Making significant business recommendations
  • Drafting and/or carrying out policies, developing long-range goals
  • Representing the company in matters of fiscal or legal importance

Assigning an employee to the wrong category can prove costly. To avoid costly mistakes, an internal audit of job classification and responsibilities — performed in partnership with competent legal counsel — is crucial.

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