Exempt vs non-exempt: who is owed overtime and who is not

Three tests, all required

Exemption is the exception, and the employer has to show that every condition is met. The first is the salary basis: the employee regularly receives, each pay period of a week or longer, a predetermined amount that is not reduced because of variations in the quality or quantity of the work performed. The second is the salary level, $684 a week under the federal regulation, which can also be paid as $1,368 every two weeks or $2,964 a month. The third is the duties test, which looks at what the employee actually does all day. Fail any one, and the job is non-exempt, salary or not. The regulations also say plainly that the white-collar exemptions do not apply to manual laborers and other blue-collar workers, such as production-line employees, carpenters, electricians, mechanics and plumbers, however much they earn.

The duties tests, category by category

Executive. The primary duty must be management of the enterprise or of a customarily recognized department or subdivision. The employee must customarily and regularly direct the work of two or more other employees, and must have the authority to hire or fire, or have suggestions and recommendations on hiring, firing, advancement or promotion that are given particular weight. A shift lead who runs the register most of the day and has no say in staffing does not fit.

Administrative. The primary duty must be office or non-manual work directly related to the management or general business operations of the employer or its customers, and it must include the exercise of discretion and independent judgment with respect to matters of significance. Think of an analyst who sets purchasing policy or a human resources specialist who decides how policies apply. Clerical work, data entry and following a set procedure do not qualify, even in an office.

Learned professional. The primary duty must require knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction: law, medicine, accounting, engineering, the sciences. Creative professional. The work must require invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer employees. Systems analysts, programmers, software engineers and similarly skilled workers can be exempt when their primary duty is systems analysis, or the design, development, testing or modification of computer systems or programs. They are the one white-collar group that can be paid by the hour: at least $27.63 an hour, or on a salary of at least $684 a week. The title on the business card does not matter; the work does.

Outside sales. The primary duty must be making sales or obtaining orders or contracts, and the employee must be customarily and regularly engaged away from the employer's place of business. No salary test applies. An inside sales representative working the phones from an office is not covered by this exemption.

Primary duty and the half-time rule of thumb

Every duties test turns on the primary duty, defined as the principal, main, major or most important duty the employee performs, judged on the character of the job as a whole. Time spent is a useful guide: an employee who spends more than half the time on exempt work will generally meet the requirement. It is not a strict cut-off. An assistant store manager who supervises staff, orders merchandise and manages the budget may still have management as the primary duty while spending much of the day on the register, unless that person is closely supervised and earns little more than the hourly staff. The factors are the relative importance of the exempt duties, the time spent on them, freedom from direct supervision and the gap between the salary and the wages of non-exempt coworkers.

The salary basis in practice

An exempt employee must receive the full salary for any week in which any work is performed, whatever the number of days or hours worked. Deductions are not allowed for absences caused by the employer or by a lack of work. The exceptions are narrow: full-day absences for personal reasons, full-day absences for sickness under a bona fide sick leave or disability plan, good-faith penalties for major safety violations, and unpaid disciplinary suspensions of full days for workplace conduct violations. Docking half a day for a late arrival breaks the salary basis. Up to ten percent of the federal salary level may come from nondiscretionary bonuses and commissions paid at least once a year.

Some professions skip the salary test altogether: teachers, and employees who hold a valid license to practice law or medicine and actually practice it, are exempt on duties alone. At the other end, a highly compensated employee earning at least $107,432 a year, including $684 a week in salary, is exempt if he or she customarily and regularly performs at least one exempt duty of an executive, administrative or professional employee.

State rules that raise the bar

A state can set a higher salary level or stricter duties tests, and the employee gets the benefit of whichever law is more protective. Washington, California, New York, Alaska, Colorado and Maine require more than the federal $684 a week, with Washington at the top at $1,541.70. Some states also write duties tests of their own that are stricter than the federal ones. Maine, for instance, does not apply the federal highly compensated shortcut at all. The salary threshold guide lists the state levels and how each is set.

A worked case shows what is at stake. An office coordinator paid $45,000 a year, or $865.38 a week, works 50 hours a week. The salary clears the federal level, but if the job mostly follows procedures set by others, it fails the administrative duties test. The coordinator is then non-exempt: the regular rate is $17.31, and each week of 50 hours owes an extra $86.54 in overtime premium, about $4,327 over 50 weeks. In a state with a higher salary level, the job may fail on salary alone.

If you think you are misclassified

Keep a record of the hours you work and a description of what you do, in your own words, with examples. Compare them with the tests above. A misclassified employee is owed back overtime for every week the job should have been treated as non-exempt, within the time limit the law sets, so it is better not to wait. The state labor agency or the Wage and Hour Division takes the claim and decides it on the facts; an employment lawyer can look at a case where the duties are mixed. The time and a half guide shows how the overtime owed is computed on a salary.