Paying someone a salary doesn’t make them Exempt from minimum wage and overtime laws. Feel free to read that again.
Now twice more.
There’s a misunderstanding that seems to be popping up way too frequently: that paying salary is all you need to make an employee “Exempt” from the Fair Labor Standards Act (aka the FLSA). Employers believe they can pay a certain salary amount, specifically $684/week, and $35,568/year (1/1/20 numbers), and they’re covered, with no further need to pay overtime, or to guarantee that minimum wage is being met.
The salary requirement is part of the determination of whether an employee is exempt, but it’s a relatively small part of the test. It’s necessary, but not sufficient.
There are a few Exemptions available for employers: Administrative, Professional, and Executive are the main ones; Computer, Outside Sales, and Highly Compensated Employees might also apply. For each of these possible exemptions, an employer should compare the actual duties of the person in question with the list. Job descriptions are not enough; the listed duties have to be a real part of the employee’s every day. For each category, all of the parts must be true.
Administrative
Primary duty must:
be office or non-manual works directly related to the management or general business operations of the employer or the employer’s customers.
include the exercise of discretion and independent judgment with respect to matters of significance.
Professional*
*applies to “learned professionals,” “creative professionals,” teachers, and employees practicing in law or medicine
Learned Professionals
Primary duty must be predominantly intellectual work requiring advanced knowledge* on a topic, that requires the consistent exercise of discretion and judgment.
“Advanced knowledge” requires specialized academic training, generally at least a 4 year degree, and must be in a field of science or learning, like: law, medicine, accounting, engineering, hard sciences, pharmacy, etc.
Creative
Primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor (like music, writing, acting, and graphic arts).
Teachers
Primary duty must be teaching in an educational establishment (like regular academic teachers, kindergarten and nursery school teachers, teachers in trade schools, aircraft flight instructors, and music teachers).
Law or Medicine
Must have a valid license or certificate permitting practice, and must actually be engaged in the practice (residents and interns are included).
Executive
Primary duty must be managing the enterprise in which the employee is employed (or a customarily recognized department or subdivision of the enterprise)
Must regularly direct the work of at least 2 full time employees (or equivalent of 2)
Must have the authority to hire or fire other employees, or at the very least, their recommendation of hiring or firing should carry weight.
Outside Sales
Primary duty must be making sales away from the employer’s place of business.
Computer
Must be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled work
Primary duty must consist of:
The application of systems analysis techniques and procedures, including working with end users to determine specs
The design, development, analysis, creation, or testing of computer systems or programs based on end user specs
The design, testing, or creation of computer programs related to machine operating systems, or
A combination of the aforementioned duties
Highly Compensated Employees
Must make at least $107,432 per year
Primary duties must consist of office or non-manual work, and their principal role should revolve around the exempt duties of a Professional, Executive, or Administrative employee.
Want the full test?
1. Do you pay your employee salary?
2. Do you pay them the minimum required amount of $684 a week ($35,568/year)?
3. Do their job duties fall pretty much perfectly within one of the exemptions above?
If you have employees that don’t get paid overtime and also answered no to any of the above, it might be time to bring in a lawyer for some damage control.
What’s the overall harm to be concerned about? For any employees that failed the test, you’ll need to deliver back pay, which generally is the amount you should have paid them, doubled as a penalty, plus maybe some attorneys fees, which add up. This amount applies for each employee that didn’t properly get paid overtime. Oh and for repeat offenders, jail time is a definite possibility. Want a deeper dive? Head here
What’s the TL;DR?
Paying someone a salary doesn’t make them exempt from overtime and minimum wage requirements. Their duties also need to fit perfectly into an existing exemption category.
As usual, this is a bare bones explanation of a really complex area of law. Please don’t make any decisions that could affect you legally based on something you read online.
When in doubt, hire a lawyer.