Overtime Pay? Not All Salaried Employees Are Exempt

From time to time, clients have informed me that they made certain employees “salaried” so that they wouldn’t have to worry about paying overtime. Unfortunately, whether an employee is labeled “salaried” or “hourly” does not answer whether the employee is entitled to overtime pay. The Fair Labor Standards Act has very specific rules regarding overtime pay, and every employer needs to be familiar with these rules.

First, the law does not talk about “salaried” and “hourly” employees. Instead, it talks about employees being either “exempt” or “non-exempt.” There are five categories of “exempt” employees: executive, administrative, professional, computer, and outside sales employees. For each category, an employee must satisfy specific job requirements in order to be considered exempt. In almost every case, the employee must earn at least $455 per week ($23,660 per year) in order to be exempt.

Executive Exemption

To be considered an executive, the employee’s primary duty must be managing the business or managing a customarily recognized department or subdivision of the business. Additionally, the employee must direct the work of at least two or more other full-time employees (or their equivalent), and the employee must have the authority to hire and fire other employees or must have great influence in the hiring and firing process.

Administrative Exemption

To qualify for the administrative exemption, the employee must earn at least $455 per week, perform office or non-manual work related to the management or general operations of the business, and have the authority to exercise discretion and independent judgment with respect to matters of significance. While an office manager would fit this exemption, a receptionist would not.

Professional Exemption

The professional exemption is available for employees whose primary duty is the performance of work requiring advanced knowledge, defined “as work which is predominantly intellectual in character and which includes work requiring a consistent exercise of discretion and judgment.” The employee’s advanced knowledge must be in the field of science or learning and must customarily be acquired by a prolonged course of specialized intellectual instruction.

Computer Employee Exemption

This is a rather narrow exemption that applies to computer systems analysts, programmers, software engineers, or similarly skilled workers. It is not available to an employee who is simply responsible for maintaining an office computer system. In order to qualify for this exemption, the employee must be involved in the design, documentation, testing, creation or modification of computers or computer programs.

Outside Sales Exemption

If an employee’s primary duty is making sales or obtaining orders or contracts for services, and the employee is customarily and regularly engaged away from the employer’s place of business, then the employee will qualify for the outside sales exemption.

Highly Compensated Employees

Employees who perform office or non-manual work and who are paid $100,000 or more are considered exempt employees. However, this is sometimes referred to as the “white-collar” exemption. The exemption does not apply to anyone whose work involves manual labor, physical skill, and energy. Thus, tradesmen are non-exempt and eligible for overtime, regardless of the amount of money earned.

Luke F. McConville
April 2009