Depending on your business, you may have employees that are classified as exempt or non-exempt, or both. The distinction is key because non-exempt workers are eligible for federal minimum wage and overtime pay protections under the Fair Labor Standards Act – and may be protected by state wage and hour laws as well.
But the difference can be challenging for employers, since job titles alone aren’t always determinative. Here are the two factors to get the classification right—and avoid penalties.
1. Salary: Employees classified as exempt must be paid on a salary basis at generally not less than $455 per week (these salary requirements don’t apply to outside sales employees, teachers, and employees practicing law or medicine and exempt computer employees may be paid at least $455 on a salary basis or an hourly basis of at least $27.63 an hour).
2. Duties: Employees who perform certain job duties are exempt. There are several possible exemptions:
- The employee’s primary duty is the management of an enterprise, department or subdivision; and
- They customarily and regularly direct the work of two or more full-time employees (or equivalent); and
- They have the authority to hire, fire or promote other employees or effectively recommend similar actions.
- 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 employer’s customers; and
- The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
There are exemptions for both learned professionals and creative professionals.
- 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.
- 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.
- 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: 1) The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; 2) 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; 3) The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or 4) A combination of the aforementioned duties, the performance of which requires the same level of skills.
- The employee’s primary duty must be making sales, 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.
For more guidance with understanding the difference between exempt and non-exempt employees, check out our examples. Or contact Complete Payroll Solutions at 888-865-4470.