Understanding employees' main responsibilities and autonomy to make decisions is essential to determining their classification under the Fair Labor Standards Act (FLSA). Employees determined to be nonexempt employees are paid minimum wage or higher for any hours worked less than 40 hours a week; for any hours over 40 worked in a week a rate of time and one-half must be paid. Employees classified as exempt are not paid overtime under FLSA.
Determine how much the employee earns each week. An employee must earn a minimum $455 per week to be classified as exempt.
Determine if the employee is highly compensated. Employees earning $100,000 a year or more are considered highly compensated per FLSA standards. This test cannot be applied to nonmanagement employees. If management employees are not highly compensated then a job duties test must be performed to determine whether the job is exempt or nonexempt.
Perform a salary basis test to determine how an employee is paid. If pay is received in a predetermined amount regardless of the quantity or quality of work and full salary is paid for a week in which any work is performed an employee is considered exempt. Exceptions to the rule include personal leaves, which may reduce salary payments or sick leave paid in lieu of a regular salary.
Develop thorough job descriptions for each job title. Job title alone does not determine classification of a job as exempt or nonexempt
Use the job description to determine if an employee is an exempt executive. This classification must have management as a primary duty. Responsibilities include managing at least two full-time people and having true authority over the job status of the people managed. Responsibilities include making hiring and termination decisions, determining production levels and managing budgets.
Determine if the employee is an exempt professional. According to FLSA an exempt professional is a “learned profession.” Typically, exempt professionals have attained a level of education beyond a bachelor’s degree. Doctors, lawyers and pharmacists are examples of this exemption.
Use the job description to determine if the employee falls into the exempt administrative category. This classification is the most difficult to determine. The FLSA defines administrative duties as the completion of “non-manual or office responsibilities that require the use of discretion and independent judgment." Examples responsibilities that meet this test are materials purchasing, maintaining stock levels necessary to meet production demands and negotiating material pricing with vendors.
The most important determining factor in classifying employees as exempt or nonexempt comes from a duties test.
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