Exemption Archives - People Processes

How Do You Determine Whether an Employee Qualifies for Exemption?

Today’s episode summarizes all we have discussed regarding the FLSA exemption and provides an assessment that we recommend you perform with every single one of your employees.

Even if the information you write down is not entirely accurate, simply having this information on paper for each of your employees makes a huge difference whenever a situation calls for you to recall these critical factors.

On each evaluation sheet, provide the following information:

Name
Job category/ID
Name and title of the evaluator
Company name and tax ID
Direct supervisor’s name (if applicable)
Date of evaluation

There are eight categories under which employees can qualify as exempt:

Administrative exemption
Learned professional exemption
Creative professional exemption
Computer employee exemption
Outside sales exemption
Highly-compensated employee exemption
Business owner exemption
Executive exemption

On your evaluation sheet, respond “yes” or “no” to each of the listed statements. A response of “yes” to every statement supports a determination of exempt status for that category; a response of “no” to one or more statements supports a determination of nonexempt status. Employees may fall under more than one of these categories.

Should the employee be determined to be exempt, select all of the categories they fall under, out of the eight. Otherwise, note down that the employee does not qualify for an exemption.

How Do You Qualify for the Computer Employee, Outside Sales Employee, or Highly-Compensated Worker Exemption?

In Part 3 of our series on understanding FLSA exemptions, we went over the qualifications for the professional employee exemption. In Part 4, we will cover the computer employee, outside sales employee, and highly-compensated worker exemption.

To qualify for the computer employee exemption, the following tests must be met:

The employee must be compensated either on a salary or fee basis at a rate not less than $684 per week (as of 2020) or, if compensated on an hourly basis, at a rate not less than $27.63 an hour.
The employee must be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled workers in the computer field performing the duties described below.
The employee’s primary duty must consist of:

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 the user or system design specifications.
The design, documentation, testing, creation, or modification of computer programs related to machine operating systems.
A combination of the aforementioned duties, the performance of which requires the same level of skills.

Note that this exemption only applies to employees who are primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations. It does not apply to employees engaged in the manufacture or repair of computer hardware and related equipment. These are employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs, such as engineers, drafters, and others skilled in computer-aided design software.

To qualify for the outside sales employee exemption, all of the following tests must be met:

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.
The employee must be customarily and regularly engaged away from the employer’s place or places of business.

Highly compensated employees performing office or nonmanual work and paid total annual compensation of $100,000 or more (which must include at least $684 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee identified in the standard tests for exemption.

The regulations contain a special rule for “highly-compensated” workers who are paid total annual compensation of $100,000 or more. A highly compensated employee is deemed exempt under § 13(a)(1) if:

The employee earns total annual compensation of $100,000 or more, which includes at least $684 per week paid on a salary basis.
The employee’s primary duty includes performing office or nonmanual work.
The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative, or professional employee.

Thus, for example, an employee may qualify as an exempt highly-compensated executive if the employee customarily and regularly directs the work of two or more other employees, even though the employee does not meet all of the other requirements in the standard test for exemption as an executive.

In Part 5, we will do a recap of the eight categories under which employees may qualify as exempt.

How Do You Qualify for the Professional Employee Exemption?

In Part 2 of our series on understanding FLSA exemptions, we went over the qualifications for the administrative employee exemption. In Part 3, we will cover the professional exemption.

There are two general types of exempt professional employees: learned professionals and creative professionals.

To qualify for the learned professional employee exemption, all of the following tests must be met:

The employee must be compensated on a salary or fee basis at a rate not less than $684 per week (as of 2020).
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.
The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

To qualify for the creative professional employee exemption, all of the following tests must be met:

The employee must be compensated either on a salary or fee basis at a rate of not less than $684 per week.
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.

Teachers are exempt if their primary duty is teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge, and if they are employed and engaged in this activity as a teacher in an educational establishment.

Likewise, an employee holding a valid license or certificate permitting the practice of law or medicine is exempt if the employee is actually engaged in such a practice. An employee who holds the requisite academic degree for the general practice of medicine is also exempt if he or she is engaged in an internship or resident program for the profession.

The salary and salary basis requirements do not apply to bona fide practitioners of law or medicine.

In Part 4, we will be going into the computer employee, outside sales employee, and highly-compensated worker exemption.

How Do You Qualify for the Administrative Employee Exemption?

In Part 1 of our series on understanding FLSA exemptions, we went over what an exempt employee is, what you can and cannot do to their pay, and why you may want to have an exempt employee. In Part 2, we are deep-diving into the administrative exemption.

To qualify for the administrative employee exemption, all of the following tests must be met:

The employee must be compensated on a salary or fee basis (as defined in the regulations) at a rate not less than $634 per week (as of 2020).
The employee’s primary duty must be the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers, and
The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

For those who operate educational establishments, the administrative exemption is also available to employees compensated on a salary or fee basis at a rate not less than $634 a week, or a salary basis which is at least equal to the insurance salary for teachers in the same educational establishment. This means that, if a teacher is paid less than $634 per week, an administrator does not have to make $634, but instead make the insurance salary of the teachers. Their primary duty of these employees is work related to academic operations and functions in an educational establishment.

Employees engaged in academic administrative functions include:

Superintendents or other heads of elementary or secondary school systems, and any assistants, responsible for the administration of such matters as curriculum, quality, and methods of instructing, measuring and testing the learning potential and achievement of students, establishing and maintaining academic and grading standards, and other aspects of the teaching program.
Principals and any vice-principals responsible for the operation of an elementary or secondary school.
Department heads in institutions of higher education responsible for the administration of the mathematics department, the English department, etc.
Academic counselors who perform work such as administering school testing programs, assisting students with academic problems, and advising students concerning degree requirements.
Other employees with similar responsibilities.

Jobs relating to building management and maintenance, jobs relating to the health of the students, and staff such as social workers, psychologists, lunchroom managers, or dietitians do not perform academic administrative functions.

In Part 3, we will be going into learned and creative professional exemptions.

How Do You Determine Whether an Employee Qualifies for Exemption?

How Do You Qualify for the Computer Employee, Outside Sales Employee, or Highly-Compensated Worker Exemption?

How Do You Qualify for the Professional Employee Exemption?

How Do You Qualify for the Administrative Employee Exemption?

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