To Pay Overtime or Not to Pay: FLSA Exemptions

By: Gregory Archibald

In the American workforce, all employees are afforded certain protections by the FLSA (Federal Labor Standards Act). Generally, employees are entitled to overtime pay of time and one-half their regular pay rate if they work over 40 hours in a work week. Despite being entitled to overtime, the FLSA does not limit the amount of hours per week an employee over the age of 16 may work. There are, however, certain “exempt employees” who, because of their rate of pay and type of work they do, are not eligible for overtime pay. Pennsylvania, like many other states, reflects these same exemptions and their subsequent requirements in their own statute. One should be cautioned, however, that state law is sometimes different so it cannot be disregarded.

Each exemption to the FLSA is accompanied by its own individual requirements. For an employer to claim that an employee is truly exempt from overtime pay, it must ensure that the employee meets these requirements. While a few exemptions demand additional requirements, each exemption examines: 1) minimum salary; and 2) primary duties of the employee.

The individual exemptions are not exclusive; an employee that looks like they should fit into one exemption may still meet the requirements for another.

For example, an employee that does not meet the requirements of the Executive or Computer Professional Exemptions may still meet the requirements for the Administrative Exemption. And, the result is the same regardless of which exemption an employee fits within – no overtime pay required.

In September of 2019, the Department of Labor increased the minimum salary requirement for each exemption. This increase will take effect on January 1, 2020. This post will examine the various types of exempt employees and explain the requirements necessary to establish an employee as exempt.

Executive Exemption

The Executive Exemption generally exempts employees in management roles. To qualify for this exemption, an employer must establish that the employee meets the following requirements:

  • Minimum Salary: The employee must be compensated on a salary basis at a rate of not less than $684[1] per week ($35,586/year).
  • Primary Duties: Managing the business or managing a customarily recognized department or subdivision of the business. Additionally, the employee must customarily and regularly direct the work of at least two or more other full time employees or their equivalent.
  • Authority: 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.

Administrative Exemption

The Administrative Exemption generally applies to support staff employees such as Human Resources, Marketing, and Payroll.

  • Minimum Salary: The employee must be compensated on a salary or fee basis at a rate of not less than $684[2] per week ($35,586/year).
  • Primary Duties: 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 exercise of discretion and independent judgment with respect to matters of significance.

Learned Professional Exemption

The Learned Professional Exemption generally applies to professionals in the fields of science and learning, such as lawyers, scientists, teachers, and accountants.

  • Minimum Salary: The employee must be compensated on a salary or fee basis at a rate of not less than $684[3] per week ($35,586/year).
  • Primary Duties: 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.
  • Advanced Knowledge: The advanced knowledge must be in a field of science or learning, and must be customarily acquired by a prolonged course of specialized intellectual instruction.

Creative Professional Exemption

  • Minimum Salary: The employee must be compensated on a salary or fee basis at a rate of not less than $684[4] per week ($35,586/year).
  • Primary Duties: The performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Professional Exemption

The Computer Professional Exemption generally covers technology employees such as software developers, programmers, and IT staff.

  • Minimum Salary: The employee must be compensated on a salary or fee basis at a rate of not less than $684[5] per week ($35,586/year), or, if compensated on an hourly basis, at a rate of not less than $27.63 per hour.
  • Job Position: The employee must be employed as a computer systems analyst, computer programmer, software engineer, or similarly skilled worker in the computer field performing the duties described below.
  • Primary Duties:
    • 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.

While there are various other FLSA exemptions, such as the Outside Sales Exemption, Highly Compensated Employees, Blue Collar Workers Exemption, and Police, Firefighters, Paramedics, & Other First Responders, the above-listed exemptions affect the largest number of American workers. It is important for employers to remember that to exempt any employee from overtime, each of the above requirements must be met. Misclassifying employees as exempt is a violation of the FLSA, and can result in overtime back-pay, federal fines, and damages. It is worth noting that small businesses are not given an exemption from the above requirements under the FLSA. If an enterprise shows an annual gross volume of sales made or business done totaling to at least $500,000, FLSA will apply to the employees of that enterprise. FLSA will also apply to employees individually covered by law. This is because both types of employees are engaged in interstate commerce or in the production of goods for commerce.

This post was authored on October 5, 2019.


Greg Archibald, at the time of this post, is a third-year law student at Penn State Dickinson Law. He is from Central Pennsylvania and is interested in corporate litigation. Greg is the President of the Business Law Society and is currently a Comments Editor of the Dickinson Law Review.

 

 

[1] Effective January 1, 2020

[2] Effective January 1, 2020

[3] Effective January 1, 2020

[4] Effective January 1, 2020

[5] Effective January 1, 2020

Author: Prof Prince

Professor Samantha Prince is an Associate Professor of Lawyering Skills and Entrepreneurship at Penn State Dickinson Law. She has a Master of Laws in Taxation from Georgetown University Law Center, and was a partner in a regional law firm where she handled transactional matters that ranged from an initial public offering to regular representation of a publicly-traded company. Most of her clients were small to medium sized businesses and entrepreneurs, including start-ups. An expert in entrepreneurship law, she established the Penn State Dickinson Law entrepreneurship program, is an advisor for the Entrepreneurship Law Certificate that is available to students, and is the founder and moderator of the Inside Entrepreneurship Law blog.