What Is an Exempt Employee—and How Do You Know if You Should Be Paid Overtime? was originally published on uConnect External Content.
When you’re looking at a job offer or just looking at your paycheck, you might come across the terms “exempt” or “nonexempt” to describe your employment status. But what do these terms mean, and how is your exempt or nonexempt classification decided? Plus, what can you do if you feel that you’ve been misclassified—and should be making overtime for working more than 40 hours a week? Here’s what you need to know about being exempt or nonexempt and how it affects you as an employee.
Before you read on, an important note: While we interviewed lawyers for this story, we are not lawyers ourselves, and every case is different. So please consider this a general resource to help you get started— and if you need it, seek personalized advice specific to your situation from an actual lawyer.
What Is an Exempt Employee?
On a basic level, exempt employees don’t need to be paid overtime, while nonexempt employees must be paid overtime. According to the Fair Labor Standards Act (FLSA), all nonexempt employees are entitled to at least 1.5 times their hourly pay rate—a.k.a., “time and a half”—for every hour they work over 40 hours in a given week. However, different states and cities might have laws that increase the required amount of overtime pay or decrease the number of hours you need to work before you qualify for overtime, so be sure to check your local laws.
“Overtime is essentially a tax on employers for making the employees work over 40 hours per week,” says employee rights attorney Michael Malk of the Malk Law Firm, who regularly advises employees regarding exemption issues. “In order to avoid this tax, employees must fall under an established exemption to the overtime laws.”
To be exempt, you generally need to meet these requirements:
- You must be paid at least $684 per week—equivalent to $35,568 for a full year—on a salary basis. This means that you get paid a predetermined, set amount that’s over $684 per week (regardless of how often you receive a paycheck) and you generally don’t make less or more money based on the hours you work, the amount of work you get done, or the quality of work you do. Employers can deduct pay if you take unpaid time off, but not if you’re “ready, willing, and able to work” and your employer does not have enough work for you, according to the U.S. Department of Labor (DOL). There are some exceptions to this requirement. Some professionals—including outside sales and computer workers, teachers, and employees practicing law or medicine—could still be exempt without being either salaried or being paid $684 a week.
- The job duties you perform meet certain criteria (see below). Most job duties that meet these criteria are generally not manual labor, but there are exceptions.
Exempt employees also are typically not required to be paid the minimum wage for each hour they work, says Joanmarie Dowling, Esq., Managing Member of Dowling Law, PLLC (which represents employers in labor law matters) and Founder of Clarity HR Solutions LLC (which helps businesses develop processes and procedures for workers).
However, if you’re being paid at least $684 a week, being exempt from minimum wage laws is unlikely to affect you since you’d need to work in excess of 94 hours a week for your pay to fall below the current federal minimum wage of $7.25 per hour.
So Is Exempt the Same as Full-Time or Salaried? And Is Nonexempt the Same as Part-Time or Hourly?
Not exactly. “Because individuals must typically be paid a salary [to be considered exempt], most hourly employees are nonexempt,” but that doesn’t mean that all salaried employees are exempt, Dowling says. You still have to meet the pay rate and job duty requirements laid out by the FLSA.
So, for example, if you’re salaried, but you make less than $35,568 annually or your job is primarily manual labor, you are likely nonexempt. And while many salaried employees are full-time workers, a part-time, salaried worker who satisfies the DOL job duty requirements could be considered exempt, Dowling says.
What Types of Jobs Can Be Exempt?
Certain types of jobs generally cannot be exempt. “Blue-collar” workers and other manual laborers whose primary work involves performing repetitive operations that require the use of their hands, physical skills, and energy are typically entitled to minimum wage and overtime regardless of their salary, according to the DOL. Generally, police, firefighters, paramedics, and other first responders also cannot be exempt employees.
There are six main categories of exempt employees under the FLSA: executive, administrative, professional, computer, outside sales, and highly compensated employees. Here’s a closer look at the main exemption categories:
The executive employee exemption is for workers whose main job is managing part or all of a business. But “the title ‘manager’ does not automatically trigger the exemption,” Malk says. Here are all the criteria your job duties must meet in order to be eligible for the executive exemption according to the FLSA:
- Your primary duty is managing other people or a business in a formal capacity. When it comes to exempt employees, primary duty is “often thought of as at least 50% of job duties,” Malk says. So for example, a marketing director or other department head may qualify for the executive exemption as well as a C-Suite executive like a COO.
- You must direct the work of at least two full-time employees or the equivalent. “Someone who only supervises one employee would not qualify,” Dowling says.
- You must have the authority to hire and fire employees or particular weight must be given to your recommendations to hire, fire, promote, or demote employees. Even “someone who is a ‘lead’ or senior employee who helps to direct work may not have the required level of authority, depending on their job responsibilities,” Dowling says, if they don’t have significant or total say over the status of the employees they manage.
The administrative employee exemption may be the most broadly defined exemption on this list. Because of the “catch-all” nature of the definition, in Malk’s experience, “Cases where an employee is suing for unpaid overtime and the employer claims that the employee falls under the administrative exception are hard fought.”
The job duty requirements put forward by the DOL for this category are:
- Your primary duty is performing office or other non-manual work directly related to the management or general operation of your organization or its customers. For example, administrative work might include job duties in HR, accounting, procurement, compliance, quality control, finance, advertising, or marketing. If these administrative duties account for more than half of your job, you might qualify for this exemption. “Theoretically, an employee who spends just over 50% of the time on administrative duties and just under 50% of the time doing manual labor could be exempt from overtime,” Malk says.
- Your duties require you to exercise discretion and independent judgement for matters of significance. “Generally speaking, this means the employee must be able to evaluate options and make decisions regarding important matters for the employer,” Dowling says. “We are looking at someone with higher-level decision making authority,” but this can vary across specific cases. For example, Malik says, “human resource managers who write or interpret employment policies generally meet the exemption,” Malk says. “However, human resource clerks who screen applicants to gather data for hiring, but do not make decisions, will generally not be exempt.”
The professional employee exemption is divided into two categories: “learned professionals” and “creative professionals.”
Learned professionals—such as doctors, physician assistants, lawyers, nurses, pharmacists, and accountants—must meet these requirements:
- Your primary duty must be work that requires advanced knowledge, defined by the FLSA as work that is “predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.”
- You use your required advanced knowledge in a field of science or learning.
- Your knowledge was gained through prolonged, specialized intellectual instruction such as graduate or professional school.
Creative professionals—for example, actors, singers and musicians, writers and journalists, and artists and designers—must meet this requirement:
- Your primary duty is performing or creating work that requires invention, imagination, originality, and/or talent.
To be clear, just because you use a computer at your job all day does not mean you necessarily fit under the computer employee exemption. “The computer exemption is very technical and, for that reason, it is one of the most misunderstood exemptions,” Dowling says.
One major difference between computer employees and the other exemption groups is that computer employees can be paid hourly. However, if a computer employee is paid hourly, they must be making at least $27.63 an hour—which is $57,470 per year if working full time—in order to be classified as exempt. If a computer employee is salaried, they’re still subject to the same, lower $684 per week salary minimum as other exempt employees.
The other requirements for the computer exemption are, according to the FLSA:
- You must be employed as a computer systems analyst, computer programmer, or software engineer, or be another similarly skilled worker in the field.
- Your primary duties must be performing certain tasks. “There are many duties that could qualify someone for the computer exemption, but merely performing routine help desk work [for example] will not typically qualify,” Dowling says. According to the DOL, these duties include designing, developing, testing, analyzing, and modifying computer systems or programs. You can read the full list of tasks here.
Outside Sales Employees
Outside sales employees primarily work outside of their employer’s office. For example, a company on the West Coast may hire outside sales employees who live on the East Coast and can engage with potential customers in that part of the country in person. “This exemption came about because of the difficulty in controlling the hours of outside employees,” Malk says.
According to the FLSA, outside sales employees must meet these requirements to be exempt:
- Your primary duty is making sales or obtaining orders or contracts on your employer’s behalf.
- You regularly and customarily work away from your employer’s place of business.
Note that outside sales employees are not held to the $684 minimum weekly salary requirement.
Highly Compensated Employees
The highly compensated employee exemption is a bit different from the previous five categories: It doesn’t require a certain “primary job duty.” Instead, a highly compensated employee must perform office or non-manual work which includes at least one of the duties of an exempt executive, administrative, or professional employee and make at least $107,432 annually (and at least $684 a week must be in the form of a regular, predetermined salary ther than bonuses or commission, for instance). “We don’t tend to see a lot of highly compensated employees who don’t also qualify for a traditional exemption, but sometimes consultants, folks in the financial industry, or others may qualify,” Dowling says.
Other Exempt Employees
There are some other professions and fields where employees are exempt from either minimum wage laws, overtime laws, or both, such as employees of small farms or certain recreational and seasonal establishments; drivers, drivers’ helpers, loaders, and mechanics employed by motor carriers; airline and railroad employees; and commissioned sales employees who meet certain requirements. You can read the full list of exemptions to overtime and minimum wage laws here.
Do These Laws Apply Everywhere in the U.S.?
The laws and requirements outlined above are the bare minimum throughout the U.S. However, many states and cities have their own laws that are more favorable to the worker. For example, in California, one of the states where Malk practices, nurses must be nonexempt employees and overtime kicks in after eight hours in one day rather than 40 in one week.
As another example, in order to qualify for the executive or administrative exemption in most of New York state, you must be making $937.50 per week ($48,750 annually). If you’re working in New York City, it’s $1,125 per week ($58,500 annually). And some counties in the state have a minimum salary between those two numbers.
If you commute to a different state, you’re generally subject to the laws of the state where you’re working, but the tests vary from state to state, Dowling says. However, if you’re a remote worker working from home, you’re likely subject to the laws of where you live, Dowling says—but each individual case is different and can get complicated depending on which two states are at play.
What Should You Do if You Think You’re Being Misclassified?
If you feel like you’re being misclassified as exempt under U.S., state, or local laws, you should figure out exactly how that misclassification is affecting you, Malk says. Should you just be earning overtime or do your hours worked sometimes even place your pay below minimum wage? Does your state or city have additional laws that would give you more perks or protections as a nonexempt employee? For example, in California nonexempt employees are entitled to certain meal and rest breaks or pay in lieu of those breaks, Malk says.
Then, if you’re comfortable with it, you can approach HR at your company and ask them to check that you’re being classified the right way, Malk says. You might start by asking something along the lines of, “I see on my paycheck that I’m classified as an exempt employee. Is this correct?”
If you’re told that it is correct, you can follow up by asking what criteria your employer is using to determine that you’re exempt, and let the HR professional know if you feel that there’s a mismatch between the job you do and what they describe. If that doesn’t work, Dowling says that both the U.S. Department of Labor and your state’s department of labor can be helpful in answering questions about your classification and next steps.
If you’re looking for a job and come across a job posting that seems to be misclassified as exempt or nonexempt, you might try respectfully asking about if you’d be paid overtime in this position and how often you’d be expected to work, Malk says. If the answer you receive doesn’t feel right for you, that’s likely a signal to keep looking (and you can find openings and apply right here on The Muse!). Because you want to end up with an employer who values you and your time correctly.