About the Fair Labor Standards Act

Overtime ClockCoverage Under the Fair Labor Standards Act (FLSA)

Most jobs are governed by the FLSA. However, some jobs are excluded from FLSA coverage by statute. Other jobs, while governed by the FLSA, are considered “exempt” from the FLSA overtime rules, meaning that employees who qualify as “exempt” are not entitled to receive overtime pay.

Exclusions from FLSA coverage
Particular jobs may be excluded from coverage under the FLSA overtime rules. There are two general types of FLSA exclusion. Some jobs are specifically excluded in the statute itself. For example, employees of movie theaters and many agricultural workers are not governed by the FLSA overtime rules.

Another type of exclusion is for jobs which are governed by some other specific federal labor law. As a general rule, if a job is governed by some other federal labor law, the FLSA does not apply. For example, most railroad workers are governed by the Railway Labor Act, and many truck drivers are governed by the Motor Carriers Act, and not the FLSA. Many of FLSA exclusions are found in §213 of the FLSA.

Salary level test
Employees who are paid less than $23,600 per year ($455 per week) are non-exempt, meaning they are entitled to receive overtime pay. (Employees who earn more than $100,000 per year are almost certainly exempt.)

Salary basis test
Generally, an employee is paid on a salary basis if he/she has a “guaranteed minimum” amount of money he/she can count on receiving for any work week in which he/she performs “any” work. This amount need not be the entire compensation received, but there must be some amount of pay the employee can count on receiving in any work week in which the employee performs any work. Some “rules of thumb” indicating that an employee is paid on a salary basis include whether an employee’s base pay is computed from an annual figure divided by the number of paydays in a year, or whether an employee’s actual pay is lower in work periods when he/she works fewer than the normal number of hours. However, whether an employee is paid on a salary basis is a “fact,” and thus specific evaluation of particular circumstances is necessary. Whether an employee is paid on a salary basis is not affected by whether pay is expressed in hourly terms, but whether the employee has a guaranteed minimum amount of pay he/she can count on, regardless of the number of hours the employee works in a particular pay period.

With some exceptions, the base pay of a salaried employee may not be reduced based on the quality or quantity of work performed. This usually means that the base pay of a salaried employee may not be reduced if he/she performs less work than normal, if the reason for that is determined by the employer. For example, a salaried employee’s base pay may not be reduced if there is no work to be performed’ Likewise, a salaried employee’s base pay may not be reduced for partial day absences. However, employers may dock the base pay of salaried employees in full day increments for disciplinary suspensions, personal leave, or sickness under a bona fide sick leave plan.

Thus, there can be “permissible” and “impermissible” reductions in salary basis pay. Permissible reductions have no effect on the employee’s exempt status. Impermissible reductions may alter the employee’s pay basis and could change his classification to “non-exempt” (eligible to receive overtime pay). However, employers have several avenues by which they can cure impermissible reductions in salary basis pay, and as a practical matter these make it unlikely that an otherwise exempt employee would become non-exempt because of salary basis pay problems. The salary basis pay requirement for exempt status does not apply to some jobs (for example, doctors, lawyers and schoolteachers are exempt even if the employees are paid hourly).

The duties tests
An employee who meets the salary level tests and also the salary basis tests is exempt from overtime pay only if he/she also performs exempt job duties. These FLSA exemptions are limited to employees who perform relatively high-level work. Whether the duties of a particular job qualify as exempt depends on what they are. Job titles or position descriptions are of limited usefulness in this determination. What matters is what an employee actually does on a daily basis, not what the his/her job title is. The actual job tasks that must be evaluated, along with how the particular job tasks fit into the employer’s overall operations.

FLSA overtime exemptions
There are a number of exemptions under the FLSA that have to do with the duties that employees perform and their roles in their organizations. Specifically, as detailed below, these exemptions are for “executive”, “administrative” and “professional” employees, among others.

Executive Exemption
To qualify for the executive employee exemption, all of the following tests must be met:

  • The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week
  • The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise
  • The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent
  • The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight

Supervision means what it implies, overseeing the work of others. The supervision must be a regular part of the employee’s job, and must be of other employees. Supervision of non-employees does not meet the standard. The “two employees” requirement may be met by supervising two full-time employees or the equivalent number of part-time employees. (Two half-time employees equal one full-time employee.)

In addition to supervisory responsibilities, the supervisory employee must have “management” as the “primary duty” of the job. The FLSA Regulations contain a list of typical management duties. These include (in addition to supervision):

  • interviewing, selecting, and training employees
  • setting rates of pay and hours of work
  • maintaining production or sales records (beyond the merely clerical)
  • appraising productivity; handling employee grievances or complaints, or disciplining employees
  • determining work techniques
  • planning the work
  • apportioning work among employees
  • determining the types of equipment to be used in performing work, or materials needed
  • planning budgets for work
  • monitoring work for legal or regulatory compliance
  • providing for safety and security of the workplace

Determining whether an employee has management as the primary duty of the position requires case-by-case evaluation. A rule of thumb is to determine if the employee is in charge of a department or a subdivision of the enterprise. Typically, only one executive employee is in charge at any particular time.

An employee may qualify as performing executive job duties even if he/she performs a variety of “regular” job duties as well. For example, the manager at a retail store may in reality spend most of the shift doing things that subordinate employee are also doing. He is, however, still in charge of the operation even when he is not delegating to subordinates or managing operations. In the event that some “executive” decisions are required, the manager is there to make them, and this should be sufficient to make him exempt from overtime under the “executive” exemption.

The final requirement for the executive exemption is that the employee has genuine input into personnel matters. This does not require that the employee be the final decision maker on such matters, but rather that the employee’s input is given “particular weight.” Usually, it will mean that making personnel recommendations is part of the employee’s normal job duties, that the employee makes these kinds of recommendations frequently enough to be a “real” part of the job, and that higher management takes the employee’s personnel suggestions or recommendations seriously.

Administrative Exemption

The most challenging of the definitions of exempt job duties concerns the “administrative” exemption. To qualify for the administrative 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 $455 per week
  • 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 the employer’s customers
  • The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance

The administrative exemption is designed for relatively high-level employees whose main job is to “keep the business running.” A useful rule of thumb is to distinguish administrative employees from “operational” or “production” employees. Employees who make what the business sells are not administrative employees. Administrative employees provide “support” to the operational or production employees. They are “staff” rather than “line” employees.

Examples of administrative functions include labor relations and personnel (human resources employees), payroll and finance (including budgeting and benefits management), records maintenance, accounting and tax, marketing and advertising (as differentiated from direct sales), quality control, public relations (including shareholder or investment relations, and government relations), legal and regulatory compliance, and some computer-related jobs (such as network, internet and database administration).

To be exempt under the administrative exemption, the work must be office or non-manual and must concern matters of significance. Clerical employees perform office or non-manual support work but are not administratively exempt. Administratively exempt work typically involves the exercise of “discretion” and “independent judgment,” with the authority to make decisions on matters which affect the business as a whole or a significant part of it. In other words, it is the ability to choose between various alternatives independently without having to check with superiors or conform to a narrow range of choices.

The type of duties might include whether the employee has the authority to formulate or interpret company policies; how major the employee’s assignments are in relation to the overall business operations of the enterprise (buying paper clips versus buying a fleet of delivery vehicles, for example); whether the employee has the authority to commit the employer in matters which have significant financial impact; whether the employee has the authority to deviate from company policy without prior approval.

An example of administratively exempt work could be the buyer for a department store. He/she performs office or non-manual work and is not engaged in production or sales. The job involves work which is necessary to the overall operation of the store — selecting merchandize to be ordered as inventory. It is important work, since having the right inventory (and the right amount of inventory) is crucial to the overall well-being of the store’s business. It involves the exercise of a good deal of important judgment and discretion, since it is up to the buyer to select items which will sell in sufficient quantity and at sufficient margins to be profitable.

While clerical work may be administrative, it is not exempt. Most secretaries, for example, may accurately be said to be performing administrative work, but their jobs are not usually exempt. Similarly, preparing routine reports, answering telephones, making travel arrangements, working on customer “help desks,” and similar jobs are not likely to be high-level enough to be administratively exempt. Many clerical workers do in fact exercise some discretion and judgment in their jobs. However, to render an employee overtime exempt the exercise of judgment and discretion must be about matters of considerable importance to the operation or the enterprise as a whole.

Routinely ordering supplies (and even selecting which vendor to buy supplies from) is not likely to be considered of such significance to qualify the employee for administratively exempt status. There is no “bright line” test. The issue requires a close and comprehensive review of an employee’s overall duties and responsibilities.

Professional exemption

The job duties of the traditional “learned professions” are exempt. These include lawyers, doctors, dentists, teachers, architects, clergy. Also included are registered nurses (but not LPNs), accountants (but not bookkeepers), engineers (who have engineering degrees or the equivalent and perform work of the sort usually performed by licensed professional engineers), actuaries, scientists (but not technicians), pharmacists, and other employees who perform work requiring “advanced knowledge” similar to that historically associated with the traditional learned professions.

Professionally exempt work means work which is predominantly intellectual, requires specialized education, and involves the exercise of discretion and judgment. Professionally exempt workers must have education beyond high school, and usually beyond college, in fields that are distinguished from (more “academic” than) the mechanical arts or skilled trades. Advanced degrees are the most common measure of this, but are not absolutely necessary if an employee has attained a similar level of advanced education through other means (and perform essentially the same kind of work as similar employees who do have advanced degrees).

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 (as defined in the regulations) at a rate not less than $455 per week
  • 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

Some employees may also perform “creative professional” job duties which are exempt. This classification applies to jobs such as actors, musicians, composers, writers, cartoonists, and some journalists. It is meant to cover employees in these kinds of jobs whose work requires invention, imagination, originality or talent; who contribute a unique interpretation or analysis.

Identifying most professionally exempt employees is usually pretty straightforward and uncontroversial, but this is not always the case. Whether a journalist is professionally exempt, for example, or a commercial artist, will likely require careful analysis of just what the employee actually does.

Computer Employee 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 (as defined in the regulations) at a rate not less than $455 per week 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 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.

Police, Fire Fighters, Paramedics & Other First Responders

The exemptions do not apply to police officers, detectives, deputy sheriffs, state troopers, highway patrol officers, investigators, inspectors, correctional officers, parole or probation officers, park rangers, fire fighters, paramedics, emergency medical technicians, ambulance personnel, rescue workers, hazardous materials workers and similar employees, regardless of rank or pay level, who perform work such as preventing, controlling or extinguishing fires of any type; rescuing fire, crime or accident victims; preventing or detecting crimes; conducting investigations or inspections for violations of law; performing surveillance; pursuing, restraining and apprehending suspects; detaining or supervising suspected and convicted criminals, including those on probation or parole; interviewing witnesses; interrogating and fingerprinting suspects; preparing investigative reports; or other similar work.

Rights of exempt employees

Exempt employees have virtually no rights under the FLSA overtime rules. About all an exempt employee is entitled to under the FLSA is to receive the full amount of the base salary in any work period during which he/she performs any work (less any permissible deductions). Nothing in the FLSA prohibits an employer from requiring exempt employees to “punch a clock,” or work a particular schedule, or “make up” time lost due to absences. Nor does the FLSA limit the amount of work time an employer may require or expect from any employee, on any schedule. (“Mandatory overtime” is not restricted by the FLSA.) Keep in mind that this discussion is limited to rights under the FLSA. Exempt employees may have rights under other laws or by way of employment policies or contracts.

Rights of Non-exempt employees

Non-exempt employees are entitled under the FLSA to time and one-half their “regular rate” of pay for each hour they actually work over the applicable FLSA overtime threshold in the applicable FLSA work period.

Other Laws & Collective Bargaining Agreements

The FLSA provides minimum standards that may be exceeded, but cannot be waived or reduced. Employers must comply, for example, with any federal, state or municipal laws, regulations or ordinances establishing a higher minimum wage or lower maximum workweek than those established under the FLSA. Similarly, employers may, on their own initiative or under a collective bargaining agreement, provide a higher wage, shorter workweek, or higher overtime premium than provided under the FLSA. While collective bargaining agreements cannot waive or reduce FLSA protections, nothing in the FLSA or the Part 541 regulation relieves employers from their contractual obligations under such bargaining agreements.