What Makes an Employee Exempt?

As recruiters and hiring managers, it is important to know the legal distinctions affecting employees and benefits within a company. One major legal distinction to be aware of is the difference between exempt and non-exempt employees. An exempt employee does not qualify for overtime pay while a non-exempt employee is entitled to overtime pay by law. The distinction may seem simple but the criteria involved to determine an employee’s exemption is a bit complicated. In this blog post, we will provide you with an in-depth read on what makes an employee exempt.

First, we must define who is considered an exempt employee. Under the Fair Labor Standards Act (FLSA), there are three primary categories of employees who are exempt: executive, professional, and administrative employees. In order for an employee to be classified as an exempt employee, they must meet the salary basis test, the salary level test, and the duties test.

Salary Basis Test. According to the FLSA, employees who receive a predetermined salary that does not fluctuate based on the quality or quantity of work performed are considered exempt. The salary must be of at least $455 per week. However, note that not all employees who are salaried are exempt, the nature of their work and their job duties must also be taken into account.

Salary Level Test. In addition to the salary basis test, the FLSA states that exempt employees must also receive a salary equal to or greater than the minimum threshold set by the Department of Labor. This amount has changed over the years and is currently set at $684 per week or $35, 568 per year.

Duties Test. Finally, and perhaps most importantly, in order to be exempt, an employee must meet certain job requirements in terms of their primary duties. An employee’s job duties must meet one of the following requirements:

- Executive Duties – Employees who manage a company or a department of a company, regularly direct the work of two or more employees, and have hiring and firing responsibilities are considered exempt.

- Professional Duties - Employees who have specialized knowledge in a particular field such as law, medicine, or engineering, and who perform their duties in accordance with that knowledge, are considered exempt.

- Administrative Duties – Employees whose primary duties involve administrative or office work such as payroll, records, management, and human resources are considered exempt.

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Conclusion

In summary, understanding what makes an employee exempt from overtime pay is critical in ensuring that employers remain in compliance with federal laws and avoid potential lawsuits. The combination of salary requirements and job duties plays an important role in determining employee classification. This information is important for recruiters and hiring managers as it could affect their company’s employment policies, legal liabilities, and compensation packages. By understanding the legal requirements, employers can make informed decisions and ensure that their company remains compliant.