Are your employees exempt from overtime pay?

The Department of Labor passed its Final Rule Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales, and Computer Employees under the Fair Labor Standards Act, effective December 1, 2016, which will raise the salary threshold below to $913 per week or $47,476 annually with automatic updates every three years. However, a federal court issued a preliminary injunction on November 22, 2016 blocking implementation of the rule pending further review.

Who Is an Exempt Employee?
Employment Classifications under the Fair Labor Standards Act

Like their for-profit counterparts, many nonprofits serve as employers to various types of employees whose positions trigger different federal and state rights and protections for workers. The differences between these types of employment can be confusing, and unfortunately, some nonprofits do not have the resources to maintain an in-house human resources department or outsource those services. To help clarify these differences, we explain below how to tell if an employee is exempt or nonexempt under the Fair Labor Standard Act (FLSA).

The FLSA requires employers to classify each employee as either exempt or nonexempt. Exempt employees are not covered by FLSA rules and regulations like minimum wage and overtime rights, while nonexempt employees are protected by the FLSA and must be paid at least the federal minimum wage and provided overtime pay for any hours worked beyond their 40-hour work week.

While, most employees are classified as nonexempt, it is important to understand how to identify which employees are exempt. The classification generally depends on the following three factors: (1) how much the employee is paid; (2) how she is paid; and (3) what kind of work she does. Exempt employees must be paid at least $455 per week on a salary rather than hourly basis ($23,660 annually) and perform duties considered exempt under the FLSA. Generally, employees are paid on a salary basis if there is a guaranteed minimum amount they will receive in any week in which work is performed. For example, if an employee’s base pay is calculated by dividing an annual figure by the number of paydays in a year, he is a salaried employee.

With respect to duties classified as exempt, the actual job tasks rather than titles or position descriptions must be evaluated. There are three main categories of exempt job duties: executive, professional, and administrative. Exempt executive job duties must be primarily focused on management, and the employee must regularly supervise other employees and have authority to give genuine input into the employment status of those employees. Exempt professional job duties generally require advanced knowledge to perform the work. These types of jobs are usually considered “learned professions” and include doctors, lawyers, teachers, and clergy. Creative professionals like actors, musicians, and writers who perform work requiring invention, imagination, originality, or talent in a recognized artistic field are also considered exempt professionals. Exempt administrative job duties focus on office or non-manual work directly related to the management or general business operations of the organization and require the exercise of discretion and judgment. These are generally higher level employees whose main function is to keep the business running. Examples of exempt administrative positions often include labor relations and personnel; payroll and finance; records maintenance; accounting and tax; marketing and advertising; quality control; public relations; legal and regulatory compliance; and network, internet, and database administration. Clerical support staff who perform administrative work are not exempt under this category.

The differences between exempt and nonexempt employees can be complicated to navigate. If you have questions about classifying an employee as exempt or nonexempt for FLSA purposes, please contact us.

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