Human Resources & Payroll Blog

How to Use FLSA Status to Classify Employees

Jun 7, 2016 9:00:00 AM / by John Duval

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After months of waiting for the final verdict on the proposed FLSA changes from the Department of Labor, HR professionals and employers have some answers–and a lot of work ahead.

On May 18, 2016, President Obama announced the official publication of the Department of Labor's final ruling for overtime regulations. Within its first year of implementation, these new FLSA regulations will extend overtime pay protections to over 4 million workers in the U.S. The FLSA changes will go into effect on December 1, 2016.  On January 1, 2020, automatic updates to nonexempt status thresholds went into effect and will continue to update every three years.

These overtime regulations changes have created quite a buzz among Human Resources professionals and employers. Now that we know the threshold is changing for FLSA status, we must determine FLSA classification.

How do you know when employees are exempt or non-exempt for overtime pay and other FLSA coverage?

FLSA Status: Exempt or Non-Exempt

What is the difference between Exempt and Nonexempt employees?

Nonexempt employees: The FLSA’s rules and regulations cover nonexempt workers in regards to minimum wage standards, overtime pay, and other protections. Under FLSA coverage, employers must pay non-exempt employees at least the federal minimum wage for hours worked. For all hours worked over 40 hours in a workweek, the employer must pay non-exempt employees time and one-half the regular rate of pay.

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Exempt employees: Unlike non-exempt workers, FLSA coverage does not protect exempt workers. Essentially, exempt employees are exempt from coverage.

There are some exceptions, however, where other federal labor laws override the FLSA. The FLSA states that, as a general rule, if a job is governed by another federal labor law, the FLSA does not apply.

How do you determine an employee's FLSA status?

Employers pay exempt employees for the job they do, not the hours it takes them to do the work. So, these exempt employees are not eligible for protection by the FLSA, including overtime pay.

To classify an employee’s FLSA status, you must answer the following questions:

  1. Does the employee earn a salary?
  2. How much does the employee earn per week or per year?
  3. Does the employee’s role require certain responsibilities or functions that the Department of Labor considers exempt duties?

While there are a few exceptions, employees must meet all three of the tests above to be exempt from FLSA coverage. An employee passes the test, so to speak, if:

  • The employee receives pay on a salary basis.
  • The employee earns at least $23,600 per year or $455 per week. (Effective December 1, 2016: This threshold will increase to $47,476 per year or $913 per week.)
  • The employee performs exempt job duties.

The DOL’s exempt duties typically include these roles:

  • Executive
  • Administrative
  • Learned Professional
  • Creative Professional
  • Computer Professional
  • Outside Sales

Let’s drill down into these exemption duties tests a little bit more.

Paid on a salary basis: Exempt status

To earn a salary means an employee earns a guaranteed minimum amount of payment for any amount of work done in a given week. Whether they need to take a sick day or a vacation day, they will still earn a guaranteed amount of pay (assuming these are within their accrued PTO days). Employees may earn more than the guaranteed minimum (via bonuses, etc) but they may not earn less. For more information about salaried workers, visit the FLSA coverage page.

Earns above the minimum salary threshold: Exempt status

This one is pretty cut and dry compared to the others. If an employee earns a salary above the FLSA threshold of $23,600 per year ($455 per week), the employee is exempt from overtime pay and other FLSA coverage.

Remember, effective December 1, 2016, the DOL's new overtime regulations increased this threshold to $47,476 per year ($913 per week).

Performs exempt job duties: Exempt status

There are some job duties the DOL considers exempt. These include roles such as executives, administrators, and other professional positions requiring certain degree levels or high-level work. It’s important to note the DOL bases the test on job duties, not job title.

The Department of Labor states that the Final Rule for overtime pay, "does not change any of the existing job duty requirements to qualify for exemption."

To meet the qualifications of exempt duties (executive, administrative, or professional), the FLSA outlines several types of duties performed.

For example, an executive role includes the following duties:

  • Supervision of other employees.
  • Management as the primary job function.
  • Has input in other workers' employment such as hiring, firing, and promotions.

See the FLSA coverage page and the FLSA Fact Sheet #17A for more information on specific job duties qualifications.

When reviewing FLSA status of employees, go through this list of questions to help you determine if an employee is exempt or nonexempt. Remember, employees must meet all three tests to be exempt from FLSA coverage.

Determining FLSA status for exempt and non-exempt employees can get complicated. Use this article to help you classify employees the correct way. For more information on classifying employees and preparing your business for the FLSA changes to overtime rules, get this guide for businesses.

Get the Guide to FLSA status and FLSA changes to overtime rules 

 

Topics: Human Resources, FLSA, Labor Laws

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