Exempt Salary Requirements for Employees

Mary Gormandy White
Woman calculating tax

In order for an employee to be exempt from overtime in the United States, the individual must be employed in a white collar position that meets specific minimum compensation and duties requirements. Additionally, employers may not make "improper deductions" from their pay. The minimum salary is changing in December 2016, though the other requirements are staying the same.

FLSA Exemption Requirements

Exemption requirements are specified by the Department of Labor (DOL) as part of the Fair Labor Standards Act (FLSA) regulations. A regulatory update changing the minimum salary requirements goes into effect December 1, 2016.

Minimum Compensation

Salary alone does not determine if an employee is exempt from overtime, but it is the first criterion that must be met.

  • Through November 30, 2016, the minimum compensation is $455 per week (which adds up to $23,660 per year) paid on a salary or fee basis.
  • As of December 1, 2016, the minimum compensation will increase to $913 per week (which adds up to $47,476 per year) paid on a salary or fee basis.

With a few exceptions (including outside sales professionals and teachers), employees who are not paid at or above the minimum level are non-exempt.

Duties Requirement

If an employee meets the salary requirement, the next step will be to determine if the duties of the position meet the requirements for exemption. It is important to note that a person's job title is not the determining factor in whether or not a position is exempt, as duties for the same job title may vary significantly from one company to another.

The DOL defines several types of exemptions. These represent different ways a position may qualify as exempt. It does not matter which way a position qualifies; if it meets the requirements for any one type of exemption, then it is exempt.

Executive Exemption

All the following criteria must be met for an employee to qualify for the executive exemption.

  • Must be paid on a salary basis (at or above the minimum requirement)
  • Primary duty must be managing the organization as a whole or a recognized division or department within it
  • Must supervise the equivalent of two or more full-time employees (i.e., four part-time employees would be sufficient)
  • Must have a say in hiring, firing, and promotion decisions

This is how supervisors, managers and executives can qualify as exempt.

Administrative Exemption

To qualify for the administrative exemption, the employee must satisfy all of these criteria.

  • Must be paid on a salary or fee basis (at or above the minimum requirement)
  • Primary duties must involve office or other white collar work (non-manual labor)
  • Primary duties must require "the exercise of discretion and independent judgment with respect to matters of significance"

This is how executive assistants, project managers, HR generalists, public relations professionals, and individuals with similar positions can qualify as exempt.

Learned Professional Exemption

The learned professional exemption can apply if the worker meets the following requirements.

  • Must be paid on a salary or fee basis (at or above the minimum requirement)
  • Primary duties must involve performing intellectual work that requires "advanced knowledge"
  • The "advanced knowledge" must be in a recognized "field of science or learning" for which specialized instruction (such as a degree) is required

This is how engineers, attorneys, and scientists may qualify as exempt. Note that the fact that a person has a degree is not sufficient on its own to qualify in this way. It must be a requirement for entry to the field.

Creative Professional Exemption

An employee who meets all of the following criteria may qualify for the creative professional exemption.

  • Except for teachers*, they must be paid on a salary or fee basis (at or above the minimum requirement)
  • Primary duties must be in a recognized creative or artistic field
  • Primary duties must require talent or the use of invention, originality or imagination

This is how illustrators, composers, artists, and teachers may qualify as exempt.

*There is no minimum salary requirement for teachers.

Computer Exemption

Computer programmer

The rules state that the following criteria must all be met for an employee to qualify for the computer exemption.

  • Must be paid either:

    • On a salary or fee basis (at or above the minimum requirement)

    • At an hourly rate* of at least $27.63 (or more if dictated by your state)

  • Must be in a position that uses very high-level computer skills. Primary duties must include such tasks as:

    • Systems analysis to determine software, hardware or function specs

    • Designing, programming, or creating computer programs or operating systems

This is how programmers, systems analysts, and software engineers can qualify as exempt.

*This is the only situation in which hourly employees can be exempt. If you pay a computer professional hourly, the amount determines whether or not you have to pay time-and-a-half or straight time if he or she works more than 40 hours in a work week.

Outside Sales Exemption

There is no minimum salary requirement for this kind of exemption. Outside sales professionals can be paid 100% commission if the employer chooses to do so.

  • Primary duty must actually be "making sales," which may include soliciting contracts or orders that customers will purchase from the company
  • This work must be "customarily and regularly" performed away from the employer's location(s)

This applies to sales professionals who primarily call on clients in their offices, such as those engaged in copier machine sales, or homes, such as those who sell windows or vinyl siding.

This does not apply to sales professionals who "customarily and regularly" work from the employer's location such as car sales professionals, those engaged in retail sales, or telephone solicitors.

Highly Compensated Exemption

White collar employees who meet the definition of "highly compensated" can be classified as exempt if they perform (on a regular basis) any one duty associated with the administrative, executive, learned professional or creative professional exemptions.

Highly compensated employees must be paid as follows:

  • Through November 30, 2016: At least $100,000 in annual compensation, which includes at least $455 weekly, paid on a salary or fee basis
  • As of December 1, 2016: At least $134,004 in annual compensation, which includes at least $913 weekly, paid on a salary or fee basis

This might apply to an inside sales manager who has a guaranteed salary that meets the minimum weekly amount, but who earns enough in sales commission and/or bonuses to cross the annual compensation threshold.

Improper Deductions

Exempt employees cannot be treated like non-exempt workers. They have to receive the same amount of pay for any week in which they perform work, without consideration for how much they accomplish or the quality of their work. Employers must not improperly deduct money from the compensation of exempt employees. Doing so would result in the loss of the exemption, which would mean the employer would be subject to non-exempt record keeping and overtime pay requirements for the employee.

Examples of improper deductions may include reducing an exempt employee's paycheck for partial day absences or even for full day absences if they are for reasons associated with business operations (such as damage to the facility or a lack of available work). See the DOL's elaws for specifics on allowed and disallowed deductions.

Critical Area of Compliance

Improper classification can be a very expensive mistake. As pointed out on Lexology.com, "Under federal law, an employer can face liability for back wages, taxes, penalties, interest, and attorney fees." It is a good idea to check with an attorney or HR consultant with wage and hour law expertise for any situations where you are not 100% certain that an individual meets the exempt status criteria, as well as to verify if any special case exceptions might apply.

Exempt Salary Requirements for Employees