Exempt or Non-exempt, which is it?
It’s no secret that the FLSA has been a topic of conversation over the last few months. Where exactly the new threshold will land for exempt employees is yet to be determined, but what does it mean to be “exempt?” How do you know if a job is truly exempt or not?
By definition, an exempt employee is one that is exempt from being paid overtime. Actual work hours are not tracked. The employee gets the job done, regardless of how long it takes. Conversely, a non-exempt employee is entitled to overtime pay and is required to track all hours worked, for overtime pay, as regulated under federal and/or individual state laws.
However, before a position can be determined to be exempt vs. non-exempt, it must be classified properly. In order to do this, employers must:
- Create or update the job description
- Determine the salary basis
- Determine a salary level test
- Perform a job duties test
Let’s start from the beginning and evaluate each step in correctly classifying a job description.
Create or update the job description: Without a job description, a job can’t be accurately classified. A well written job description helps determine the work the employee is accountable for, can be helpful in understanding how an organization functions, help develop an employee’s skills, create a career trajectory and can also be used in managing performance issues. Managers should work with their HR department to create a complete and compliant job description.
FLSA Determination: Now that the job description is complete, can we make the position exempt and call it a day? Not so fast…this is where the FLSA comes into play. There are 3 components of the FLSA that will determine a position’s exemption. In order to be exempt, the job needs to meet all 3 components as outlined by the Department of Labor (DOL). If one of the components is not met, the position is considered to be non-exempt which means it is subject to overtime wages.
Let’s review what those 3 components are:
- Salary Basis Test : This means that an employee regularly receives a pre-determined amount of compensation each pay period. This amount cannot be reduced because of variations in the quality or quantity of the employee’s work.
- Salary Threshold Test : This is used to ensure the employee meets a minimum specified amount to qualify for the exemption (this is what is currently under re-consideration). Generally speaking, the Salary Basis Test and the Salary Threshold Test go hand and hand.
- Job Duties Test : This is arguably the most difficult part of determining if a position is exempt or non-exempt. The most common exemptions are: executive, administrative, professional, outside sales and computer professionals each of which have their own duties test. To properly classify a position as exempt, the job description must meet all of the relevant job duties requirements. A job title alone does not qualify a position as exempt. Further, tight budgets and concerns about overtime expenditures does not justify classifying a position as exempt .
After all the appropriate steps have